Nick Scali (ASX:NCK) Is Reducing Its Dividend To A$0.30

Nick Scali Limited's (ASX:NCK) dividend is being reduced from last year's payment covering the same period to A$0.30 on the 26th of March. Based on this payment, the dividend yield will be 3.4%, which is lower than the average for the industry.

Check out our latest analysis for Nick Scali

Nick Scali's Future Dividend Projections Appear Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Nick Scali's dividend made up quite a large proportion of earnings but only 64% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 37.9% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.

Nick Scali Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of A$0.14 in 2015 to the most recent total annual payment of A$0.60. This means that it has been growing its distributions at 16% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Nick Scali's Dividend Might Lack Growth

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Nick Scali has been growing its earnings per share at 11% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

Even though the dividend was cut this year, we think Nick Scali has the ability to make consistent payments in the future. With a reasonable track record and good earnings coverage, the payments look sustainable. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 7 Nick Scali analysts we track are forecasting continued growth with our free report on analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.