Nova Wellness Group Berhad's (KLSE:NOVA) Shareholders Will Receive A Bigger Dividend Than Last Year

Nova Wellness Group Berhad's (KLSE:NOVA) periodic dividend will be increasing on the 8th of December to MYR0.0125, with investors receiving 4.2% more than last year's MYR0.012. This will take the dividend yield to an attractive 3.7%, providing a nice boost to shareholder returns.

Our analysis indicates that NOVA is potentially undervalued!

Nova Wellness Group Berhad's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Nova Wellness Group Berhad's earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

Looking forward, earnings per share is forecast to rise by 70.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 7.5% by next year, which is in a pretty sustainable range.

Nova Wellness Group Berhad's Dividend Has Lacked Consistency

Looking back, the company hasn't been paying the most consistent dividend, but with such a short dividend history it could be too early to draw solid conclusions. The dividend has gone from an annual total of MYR0.018 in 2018 to the most recent total annual payment of MYR0.0325. This means that it has been growing its distributions at 16% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Has Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Nova Wellness Group Berhad has seen EPS rising for the last five years, at 5.8% per annum. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Nova Wellness Group Berhad's Dividend

Overall, we always like to see the dividend being raised, but we don't think Nova Wellness Group Berhad will make a great income stock. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Nova Wellness Group Berhad (of which 1 is significant!) you should know about. Is Nova Wellness Group Berhad not quite the opportunity you were looking for? Why not check out our selection of top 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.