NEXT's (LON:NXT) Shareholders Will Receive A Bigger Dividend Than Last Year

NEXT plc (LON:NXT) will increase its dividend from last year's comparable payment on the 1st of August to £1.40. This will take the annual payment to 3.1% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for NEXT

NEXT's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. 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 4.0% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 34% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was £1.05 in 2013, and the most recent fiscal year payment was £2.06. This means that it has been growing its distributions at 7.0% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. NEXT might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

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. NEXT has seen EPS rising for the last five years, at 7.0% per annum. NEXT definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

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 2 warning signs for NEXT that investors should know about before committing capital to this stock. 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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