NEXT (LON:NXT) Is Increasing Its Dividend To £1.41

NEXT plc (LON:NXT) has announced that it will be increasing its dividend from last year's comparable payment on the 1st of August to £1.41. This makes the dividend yield 2.3%, which is above the industry average.

View our latest analysis for NEXT

NEXT's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, NEXT's dividend was comfortably covered by both cash flow and earnings. 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 3.8% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was £1.29, compared to the most recent full-year payment of £2.07. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

NEXT Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see that NEXT has been growing its earnings per share at 8.5% a 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. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 3 warning signs for NEXT 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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