Nestlé's (VTX:NESN) Upcoming Dividend Will Be Larger Than Last Year's

Nestlé S.A. (VTX:NESN) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of April to CHF3.05. This makes the dividend yield 3.5%, which is above the industry average.

Our free stock report includes 1 warning sign investors should be aware of before investing in Nestlé. Read for free now.

Nestlé's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, Nestlé's dividend made up quite a large proportion of earnings but only 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.

Looking forward, earnings per share is forecast to rise by 16.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 64%, which is in the range that makes us comfortable with the sustainability of the dividend.

See our latest analysis for Nestlé

Nestlé Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was CHF2.15, compared to the most recent full-year payment of CHF3.05. This implies that the company grew its distributions at a yearly rate of about 3.6% 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 May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Nestlé hasn't seen much change in its earnings per share over the last five years.

In Summary

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign 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.

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