Nucleus Software Exports' (NSE:NUCLEUS) Shareholders Will Receive A Bigger Dividend Than Last Year

Nucleus Software Exports Limited (NSE:NUCLEUS) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of August to ₹10.00. This takes the annual payment to 1.0% of the current stock price, which unfortunately is below what the industry is paying.

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 Nucleus Software Exports' stock price has increased by 66% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Nucleus Software Exports

Nucleus Software Exports' Earnings Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, prior to this announcement, Nucleus Software Exports' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 112.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, which is in the range that makes us comfortable with the sustainability of the dividend.

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 ₹3.00 total annually to ₹10.00. This means that it has been growing its distributions at 13% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

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. Nucleus Software Exports has impressed us by growing EPS at 18% per year over the past five years. Nucleus Software Exports definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Nucleus Software Exports' Dividend

Overall, a dividend increase is always good, and we think that Nucleus Software Exports is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. Case in point: We've spotted 3 warning signs for Nucleus Software Exports (of which 2 are concerning!) you should know about. 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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.