Novo Nordisk A/S (CPH:NOVO B) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 27th of March in order to receive the dividend, which the company will pay on the 31st of March.
Novo Nordisk’s next dividend payment will be ø5.35 per share, on the back of last year when the company paid a total of ø8.35 to shareholders. Based on the last year’s worth of payments, Novo Nordisk stock has a trailing yield of around 2.3% on the current share price of DKK359.35. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s growing.
Check out our latest analysis for Novo Nordisk
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Novo Nordisk is paying out an acceptable 51% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 55% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Novo Nordisk’s earnings per share have been growing at 10% a year for the past five years. Novo Nordisk has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Novo Nordisk has delivered 19% dividend growth per year on average over the past ten years. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
Should investors buy Novo Nordisk for the upcoming dividend? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we’d also note that Novo Nordisk is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. Overall, it’s hard to get excited about Novo Nordisk from a dividend perspective.
While it’s tempting to invest in Novo Nordisk for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Novo Nordisk and you should be aware of it before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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