Nufarm (ASX:NUF) Is Reducing Its Dividend To A$0.04

Nufarm Limited (ASX:NUF) has announced that on 14th of June, it will be paying a dividend ofA$0.04, which a reduction from last year's comparable dividend. Based on this payment, the dividend yield will be 1.8%, which is lower than the average for the industry.

See our latest analysis for Nufarm

Nufarm Is Paying Out More Than It Is Earning

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Even in the absence of profits, Nufarm is paying a dividend. Along with this, it is also not generating free cash flows, which raises concerns about the sustainability of the dividend.

Over the next year, EPS is forecast to grow rapidly. Assuming the dividend continues along recent trends, we could see the payout ratio reach 553%, which is on the unsustainable side.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from A$0.10 total annually to A$0.08. Doing the maths, this is a decline of about 2.2% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It's encouraging to see that Nufarm has been growing its earnings per share at 50% a year over the past five years. The company hasn't been turning a profit, but it running in the right direction. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.

The Dividend Could Prove To Be Unreliable

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. Strong earnings growth means Nufarm has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Nufarm that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.