NEXT's (LON:NXT) Upcoming Dividend Will Be Larger Than Last Year's

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 £1.40. This will take the dividend yield to an attractive 3.1%, providing a nice boost to shareholder returns.

Check out our latest analysis for NEXT

NEXT's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, NEXT's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

The next year is set to see EPS grow by 0.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% 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 2013, the dividend has gone from £1.05 total annually to £2.06. This implies that the company grew its distributions at a yearly rate of about 7.0% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

We Could See NEXT's Dividend Growing

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 7.0% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for NEXT that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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