National Tyre & Wheel's (ASX:NTD) Dividend Will Be AU$0.03

National Tyre & Wheel Limited (ASX:NTD) will pay a dividend of AU$0.03 on the 8th of April. The dividend yield will be 6.3% based on this payment which is still above the industry average.

Check out our latest analysis for National Tyre & Wheel

National Tyre & Wheel's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, National Tyre & Wheel is earning enough to cover the payment, but the it makes up 354% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next year is set to see EPS grow by 36.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 24%, which is in the range that makes us comfortable with the sustainability of the dividend.

National Tyre & Wheel's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. The first annual payment during the last 4 years was AU$0.02 in 2018, and the most recent fiscal year payment was AU$0.10. This means that it has been growing its distributions at 50% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

We Could See National Tyre & Wheel's Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. National Tyre & Wheel has seen EPS rising for the last five years, at 8.4% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

We'd also point out that National Tyre & Wheel has issued stock equal to 15% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Our Thoughts On National Tyre & Wheel's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for National Tyre & Wheel (of which 1 is potentially serious!) you should know about. 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.