Nestlé India Limited (NSE:NESTLEIND) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

It looks like Nestlé India Limited (NSE:NESTLEIND) is about to go ex-dividend in the next two days. You can purchase shares before the 29th of October in order to receive the dividend, which the company will pay on the 22nd of November.

Nestlé India's next dividend payment will be ₹135 per share, on the back of last year when the company paid a total of ₹162 to shareholders. Looking at the last 12 months of distributions, Nestlé India has a trailing yield of approximately 1.0% on its current stock price of ₹15865.45. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Nestlé India can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Nestlé India

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. Fortunately Nestlé India's payout ratio is modest, at just 28% of profit. A useful secondary check can be to evaluate whether Nestlé India generated enough free cash flow to afford its dividend. Over the last year it paid out 73% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Nestlé India's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Nestlé India paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Nestlé India's earnings per share have risen 12% per annum over the last five years. Nestlé India is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Nestlé India has delivered 13% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Nestlé India worth buying for its dividend? Earnings per share have grown at a nice rate in recent times and over the last year, Nestlé India paid out less than half its earnings and a bit over half its free cash flow. Nestlé India looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Nestlé India is facing. In terms of investment risks, we've identified 1 warning sign with Nestlé India and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

When trading Nestlé India or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.