Venture Corporation Limited (SGX:V03) will pay a dividend of $0.50 on May 24. This means that the annual payout will be 4.2% of the current share price, which is the industry average.

See our latest analysis for Venture

Venture’s dividend is well covered by earnings

Unless the payouts are sustainable, the dividend yield doesn’t mean much. Prior to this announcement, Venture’s dividend was only 70% of earnings, but it paid out 241% of free cash flow. This indicates that the company is more focused on returning cash flow to shareholders, but it could mean the dividend is exposed to cuts in the future.

Over the next year, EPS is expected to increase by 18.8%. Assuming the dividend continues on recent trends, we think the payout ratio could be 64% by next year, which is in a fairly sustainable range.

Dividend volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the past 10 years. Since 2012, the first annual payment was S$0.55, compared to S$0.75 for the last annual payment. This equates to a compound annual growth rate (CAGR) of approximately 3.2% per year during this period. We are happy to see that the dividend has increased, but with a limited rate of growth and fluctuations in payouts, total shareholder return may be limited.

The dividend should increase

Earnings per share growth could be a mitigating factor given past dividend fluctuations. We are encouraged to see that Venture has grown its earnings per share by 11% per year over the past five years. Although on an earnings basis this company looks attractive as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts on the Venture Dividend

In summary, while it’s good to see the dividend hasn’t been cut, we’re a little cautious about Venture’s payouts as there may be issues maintaining them in the future. Although Venture earns enough to cover payments, cash flow is lacking. We don’t think Venture is a great stock to add to your portfolio if income is your priority.

Market movements testify to the valuation of a consistent dividend policy over a more unpredictable one. Meanwhile, despite the importance of dividend payouts, these are not the only factors our readers should be aware of when evaluating a company. For example, we chose 1 warning sign for Venture that investors should be aware of before committing capital to this security. Isn’t Venture quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.