Nu Skin Enterprises, Inc. (NYSE:NUS) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 29th of August to receive the dividend, which will be paid on the 11th of September.
Nu Skin Enterprises’s upcoming dividend is US$0.37 a share, following on from the last 12 months, when the company distributed a total of US$1.48 per share to shareholders. Looking at the last 12 months of distributions, Nu Skin Enterprises has a trailing yield of approximately 3.7% on its current stock price of $40.11. If you buy this business for its dividend, you should have an idea of whether Nu Skin Enterprises’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Nu Skin Enterprises paid out more than half (65%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.
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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re discomforted by Nu Skin Enterprises’s 18% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Nu Skin Enterprises has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. That’s interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company’s profits. This can be valuable for shareholders, but it can’t go on forever.
The Bottom Line
From a dividend perspective, should investors buy or avoid Nu Skin Enterprises? It’s never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We’re aware though that if earnings continue to decline, the dividend could be at risk. It’s not that we think Nu Skin Enterprises is a bad company, but these characteristics don’t generally lead to outstanding dividend performance.
Curious what other investors think of Nu Skin Enterprises? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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