Nick Scali's (ASX:NCK) Dividend Will Be Increased To A$0.35

September 27, 2022
  •  Updated
November 24, 2022
ASX:NCK
Source: Shutterstock

Nick Scali Limited (ASX:NCK) will increase its dividend from last year's comparable payment on the 24th of October to A$0.35. This takes the annual payment to 7.0% of the current stock price, which is about average for the industry.

Check out our latest analysis for Nick Scali

Nick Scali's Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before this announcement, Nick Scali was paying out 76% of earnings, but a comparatively small 55% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 3.7%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 86% which is a bit high but can definitely be sustainable.

historic-dividend
ASX:NCK Historic Dividend September 27th 2022

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. The annual payment during the last 10 years was A$0.09 in 2012, and the most recent fiscal year payment was A$0.70. This means that it has been growing its distributions at 23% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that Nick Scali has been growing its earnings per share at 15% a year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Our Thoughts On Nick Scali's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Nick Scali's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Nick Scali that you should be aware of before investing. Is Nick Scali not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Nick Scali is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis