There's A Lot To Like About Nextcom's (TLV:NXTM) Upcoming ₪0.21 Dividend

Readers hoping to buy Nextcom Ltd. (TLV:NXTM) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 6th of December, you won't be eligible to receive this dividend, when it is paid on the 4th of January.

The upcoming dividend for Nextcom will put a total of ₪0.21 per share in shareholders' pockets, up from last year's total dividends of ₪0.14. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Nextcom can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Nextcom

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Nextcom paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution.

Click here to see how much of its profit Nextcom paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Nextcom earnings per share are up 7.9% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last seven years, Nextcom has lifted its dividend by approximately 4.2% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Has Nextcom got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Nextcom is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Nextcom is halfway there. There's a lot to like about Nextcom, and we would prioritise taking a closer look at it.

So while Nextcom looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 3 warning signs for Nextcom and you should be aware of them before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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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