Don't Buy nVent Electric plc (NYSE:NVT) For Its Next Dividend Without Doing These Checks

By
Simply Wall St
Published
January 16, 2021

nVent Electric plc (NYSE:NVT) stock is about to trade ex-dividend in four days. If you purchase the stock on or after the 21st of January, you won't be eligible to receive this dividend, when it is paid on the 5th of February.

nVent Electric's upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$0.70 per share to shareholders. Last year's total dividend payments show that nVent Electric has a trailing yield of 2.9% on the current share price of $24.26. If you buy this business for its dividend, you should have an idea of whether nVent Electric's dividend is reliable and sustainable. As a result, readers should always check whether nVent Electric has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for nVent Electric

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. nVent Electric reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If nVent Electric didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 34% of its free cash flow in the past year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:NVT Historic Dividend January 16th 2021

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. nVent Electric reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the nVent Electric dividends are largely the same as they were two years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.

Remember, you can always get a snapshot of nVent Electric's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Is nVent Electric an attractive dividend stock, or better left on the shelf? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering nVent Electric as an investment, you'll find it beneficial to know what risks this stock is facing. We've identified 3 warning signs with nVent Electric (at least 1 which is potentially serious), and understanding them should be part of your investment process.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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