Nick Scali's (ASX:NCK) Dividend Will Be A$0.33

Nick Scali Limited (ASX:NCK) will pay a dividend of A$0.33 on the 28th of October. This payment means the dividend yield will be 2.7%, which is below the average for the industry.

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Nick Scali's Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, Nick Scali's dividend made up quite a large proportion of earnings but only 53% 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 75.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 60%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

View our latest analysis for Nick Scali

Nick Scali Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from A$0.14 total annually to A$0.63. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year 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.

We Could See Nick Scali's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Nick Scali has grown earnings per share at 5.4% per year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Nick Scali's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Nick Scali is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Nick Scali that investors need to be conscious of moving forward. Is Nick Scali not quite the opportunity you were looking for? Why not check out our selection of top 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.