Universal Corporation (NYSE:UVV) will increase its dividend from last year's comparable payment on the 4th of August to $0.82. This makes the dividend yield about the same as the industry average at 5.6%.

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Universal's Projected Earnings Seem Likely To Cover Future Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before this announcement, Universal was paying out 85% of earnings, but a comparatively small 31% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Earnings per share could rise by 6.0% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 84%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

View our latest analysis for Universal

Universal Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $2.04, compared to the most recent full-year payment of $3.28. This means that it has been growing its distributions at 4.9% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

We Could See Universal's Dividend Growing

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Universal has impressed us by growing EPS at 6.0% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Universal's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Universal is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Universal that you should be aware of before investing. Is Universal not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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