NN Group's (AMS:NN) Upcoming Dividend Will Be Larger Than Last Year's

NN Group N.V. (AMS:NN) has announced that it will be increasing its dividend on the 15th of June to €1.56. This will take the dividend yield from 5.1% to 5.1%, providing a nice boost to shareholder returns.

Check out our latest analysis for NN Group

NN Group's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. NN Group is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Over the next year, EPS is forecast to fall by 45.6%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 51%, which is comfortable for the company to continue in the future.

NN Group's Dividend Has Lacked Consistency

NN Group has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from €1.14 in 2015 to the most recent annual payment of €2.49. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. NN Group has impressed us by growing EPS at 23% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think NN Group's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for NN Group (1 is a bit unpleasant!) 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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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.