Nexans (EPA:NEX) Is Paying Out A Larger Dividend Than Last Year

Nexans S.A. (EPA:NEX) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of May to €2.60. This takes the dividend yield to 2.6%, which shareholders will be pleased with.

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Nexans' 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. Prior to this announcement, Nexans' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

Looking forward, earnings per share is forecast to rise by 46.1% over the next year. If the dividend continues on this path, the payout ratio could be 34% by next year, which we think can be pretty sustainable going forward.

Check out our latest analysis for Nexans

Nexans' Dividend Has Lacked Consistency

It's comforting to see that Nexans has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The annual payment during the last 8 years was €0.50 in 2017, and the most recent fiscal year payment was €2.60. This works out to be a compound annual growth rate (CAGR) of approximately 23% a year over that time. Nexans has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Nexans has seen EPS rising for the last five years, at 35% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Nexans could prove to be a strong dividend payer.

Nexans Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Nexans is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Nexans that investors should know about before committing capital to this stock. 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.