Nxtdigital (NSE:NXTDIGITAL) Is Paying Out A Dividend Of ₹4.00

The board of Nxtdigital Limited (NSE:NXTDIGITAL) has announced that it will pay a dividend of ₹4.00 per share on the 27th of October. This payment means the dividend yield will be 0.9%, which is below the average for the industry.

View our latest analysis for Nxtdigital

Nxtdigital Might Find It Hard To Continue The Dividend

If it is predictable over a long period, even low dividend yields can be attractive. Despite not generating a profit, Nxtdigital is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Over the next year, EPS could expand by 48.5% if recent trends continue. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of ₹15.00 in 2012 to the most recent total annual payment of ₹4.00. This works out to a decline of approximately 73% over that time. A company that decreases its dividend over time generally isn't what we are looking for.

The Company Could Face Some Challenges Growing The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Nxtdigital has impressed us by growing EPS at 48% per year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If the company can turn a profit relatively soon, we can see this becoming a reliable income stock.

We should note that Nxtdigital has issued stock equal to 40% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Strong earnings growth means Nxtdigital has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We don't think Nxtdigital is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, Nxtdigital has 3 warning signs (and 2 which are significant) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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