NEXT (LON:NXT) Has Announced That It Will Be Increasing Its Dividend To £1.41

NEXT plc's (LON:NXT) dividend will be increasing from last year's payment of the same period to £1.41 on 1st of August. This takes the dividend yield to 2.3%, which shareholders will be pleased with.

See our latest analysis for NEXT

NEXT's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, NEXT was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to rise by 5.1% over the next year. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was £1.29 in 2014, and the most recent fiscal year payment was £2.07. This means that it has been growing its distributions at 4.8% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Has Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. NEXT has impressed us by growing EPS at 8.6% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for NEXT's prospects of growing its dividend payments in the future.

NEXT Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that NEXT is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 3 warning signs for NEXT that investors need to be conscious of moving forward. 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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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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