LifeVantage Corporation's (NASDAQ:LFVN) investors are due to receive a payment of $0.04 per share on 16th of December. This takes the annual payment to 1.2% of the current stock price, which unfortunately is below what the industry is paying.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that LifeVantage's stock price has increased by 56% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

LifeVantage's Payment Could Potentially Have Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend was quite easily covered by LifeVantage's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, EPS could fall by 10.9% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could be 53%, which we are pretty comfortable with and we think is feasible on an earnings basis.

LifeVantage Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. The annual payment during the last 2 years was $0.12 in 2022, and the most recent fiscal year payment was $0.16. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. LifeVantage's EPS has fallen by approximately 11% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think LifeVantage's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think LifeVantage 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. However, there are other things to consider for investors when analysing stock performance. To that end, LifeVantage has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.