Nestlé (VTX:NESN) Is Increasing Its Dividend To CHF3.05

The board of Nestlé S.A. (VTX:NESN) has announced that it will be paying its dividend of CHF3.05 on the 24th of April, an increased payment from last year's comparable dividend. This takes the dividend yield to 3.4%, which shareholders will be pleased with.

View our latest analysis for Nestlé

Nestlé's Payment Could Potentially Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Nestlé was paying out 73% of earnings, but a comparatively small 73% 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.

The next year is set to see EPS grow by 19.8%. If the dividend continues on this path, the payout ratio could be 62% by next year, which we think can be pretty sustainable going forward.

Nestlé Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of CHF2.15 in 2015 to the most recent total annual payment of CHF3.05. This works out to be a compound annual growth rate (CAGR) of approximately 3.6% a year over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Nestlé May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Nestlé hasn't seen much change in its earnings per share over the last five years.

Our Thoughts On Nestlé's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Nestlé that investors should take into consideration. 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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