Nesco (NSE:NESCO) Has Announced That It Will Be Increasing Its Dividend To ₹6.50

Nesco Limited (NSE:NESCO) has announced that it will be increasing its dividend from last year's comparable payment on the 20th of August to ₹6.50. This will take the dividend yield to an attractive 0.5%, providing a nice boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Nesco's stock price has increased by 33% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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Nesco's Payment Could Potentially Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Nesco's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 3.2% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 14% by next year, which is in a pretty sustainable range.

View our latest analysis for Nesco

Nesco Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of ₹1.00 in 2015 to the most recent total annual payment of ₹6.50. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Nesco Could Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Nesco has impressed us by growing EPS at 9.9% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Nesco's prospects of growing its dividend payments in the future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Nesco (1 is a bit concerning!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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