Nestlé S.A. (VTX:NESN) has announced that it will be increasing its dividend from last year's comparable payment on the 26th of April to CHF2.95. This makes the dividend yield about the same as the industry average at 2.7%.
See our latest analysis for Nestlé
Nestlé's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. At the time of the last dividend payment, Nestlé was paying out a very large proportion of what it was earning and 120% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.
Over the next year, EPS is forecast to expand by 61.2%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 55% which brings it into quite a comfortable range.
Nestlé 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. Since 2013, the annual payment back then was CHF2.05, compared to the most recent full-year payment of CHF2.95. This implies that the company grew its distributions at a yearly rate of about 3.7% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Nestlé Could Grow Its Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Nestlé has impressed us by growing EPS at 8.5% 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 always good to see the dividend being raised, we don't think Nestlé's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 4 warning signs for Nestlé that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
Valuation is complex, but we're here to simplify it.
Discover if Nestlé might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About SWX:NESN
Established dividend payer and good value.