Nedap (AMS:NEDAP) Will Pay A Larger Dividend Than Last Year At €3.20

Nedap N.V.'s (AMS:NEDAP) dividend will be increasing from last year's payment of the same period to €3.20 on 22nd of April. This will take the annual payment to 4.8% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Nedap

Nedap Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share could rise by 4.3% over the next year if things go the same way as they have for the last few years. If the dividend continues on its recent course, the payout ratio in 12 months could be 103%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was €1.10, compared to the most recent full-year payment of €3.20. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year 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.

Nedap May Find It Hard To Grow The Dividend

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. Earnings have grown at around 4.3% a year for the past five years, which isn't massive but still better than seeing them shrink. The earnings growth is anaemic, and the company is paying out 97% of its profit. This gives limited room for the company to raise the dividend in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Nedap's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Nedap that you should be aware of before investing. Is Nedap not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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