NSE S.A. (EPA:ALNSE) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase NSE's shares on or after the 1st of July will not receive the dividend, which will be paid on the 5th of July.
The company's next dividend payment will be €0.22 per share, and in the last 12 months, the company paid a total of €0.22 per share. Calculating the last year's worth of payments shows that NSE has a trailing yield of 1.1% on the current share price of €20.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. NSE paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Luckily it paid out just 5.2% of its free cash flow last year.
It's positive to see that NSE's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see NSE has grown its earnings rapidly, up 35% a year for the past five years. NSE earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. NSE has delivered 10% dividend growth per year on average over the past nine years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid NSE? NSE has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. NSE looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while NSE has an appealing dividend, it's worth knowing the risks involved with this stock. For example - NSE has 1 warning sign we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.
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