What The Dividend Investors Of Vectors Group (NYSE:VGR) Need To Know


Recently, Vector Group’s (NYSE:VGR) stock value has been rising to 40% year to date. The company has managed to maintain a healthy dividend yield of 7.5%. The figures are appealing for the dividend investors, especially because of the fact that rival companies like Altria Group (NYSE:MO) and Phillip Morris International (NYSE:PM) offer lower yields. However Vector (NYSE:VGR)’s grand dividend yield might be a blessing in disguise. Dividend investors not only require higher yields but they also want dividends which are consistent in order to get solid income.

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The reason behind Vector (NYSE:VGR)’s high yield is that the market is sure if it’s sustainable or not. Which is why Altria (NYSE:MO) and Philip Morris (NYSE:PM) yield is between 4% & 5% and on the other hand Vector (NYSE:VGR)’s yield is more than 7%.

There could be two reasons behind the investor’s skeptical behaviour towards Vector (NYSE:VGR)’s shares. One of the reasons could be the size of the company along with its product categories. Vector (NYSE:VGR) makes around $1 billion in revenue per year from merchandising cigarettes. On the other hand, revenues generated by Altria (NYSE:MO) in the year 2013 alone was more than $24 billion. Also, the revenues generated by Philip Morris (NYSE:PM) were $80 billion. Revenues generated by both companies are way higher than the revenues generated by Vector (NYSE:VGR) and that is the reason why investors feel more secure while investing in there two companies.

Another reason why investors might feel insecure with Vector (NYSE:VGR) is because it is not genuinely a tobacco company. This could be the reason why some investors would feel insecure while buying the company’s shares. Apart from its discount tobacco business, Vector (NYSE:VGR) also owns a 70% share in Douglas Elliman, which is the biggest real estate broker in New York City. Vector (NYSE:VGR)’s ownership of two completely different businesses could be the reason behind its lower dividend value and this could also be keeping investors skeptical of the company’s ability to sustain its dividend revenues.

Can Vector (NYSE:VGR) sustain its dividend?

Purchasing and retaining a stock yield of 7.5% is a positive investment provided that the dividend is maintained at all times regardless of how the stock prices materialize. Vector (NYSE:VGR) has a decent cash flow, but at the same time the company is under a lot of debt. In 2014, up till now the company has made $100 million in cash via various operations. Annually the company has made $133 million in cash from various operations. However, Vector (NYSE:VGR) still has about $1 billion in debt.

Vector (NYSE:VGR) has over $700 million in cash as well as liquid securities on the company’s balance sheet which make it’s dividends safer.

Now the only point of concern is whether Vector (NYSE:VGR)’s cash flow will continue to remain high enough to sustain its dividend. It could be a favourable stock for investors who are more open to taking risks. It will pay off excessively if the New York real estate market keeps on blooming.