Vail Resorts, Inc.'s (NYSE:MTN) investors are due to receive a payment of $2.22 per share on 10th of April. The dividend yield will be 5.6% based on this payment which is still above the industry average.

See our latest analysis for Vail Resorts

Vail Resorts' Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 129% of what it was earning and 83% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Earnings per share is forecast to rise by 28.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 111%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was $1.66, compared to the most recent full-year payment of $8.88. This means that it has been growing its distributions at 18% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Although it's important to note that Vail Resorts' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Vail Resorts' payments, as there could be some issues with sustaining them into the future. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Vail Resorts is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Vail Resorts that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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