Readers hoping to buy nVent Electric plc (NYSE:NVT) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 23rd of January to receive the dividend, which will be paid on the 7th of February.
nVent Electric’s next dividend payment will be US$0.17 per share, on the back of last year when the company paid a total of US$0.70 to shareholders. Looking at the last 12 months of distributions, nVent Electric has a trailing yield of approximately 2.7% on its current stock price of $25.57. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. That’s why it’s good to see nVent Electric paying out a modest 50% of its earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 44% of the free cash flow it generated, which is a comfortable payout ratio.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. nVent Electric’s earnings per share have fallen at approximately 21% a year over the previous three years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Given that nVent Electric has only been paying a dividend for a year, there’s not much of a past history to draw insight from.
To Sum It Up
From a dividend perspective, should investors buy or avoid nVent Electric? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It’s definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. Overall, it’s hard to get excited about nVent Electric from a dividend perspective.
Curious what other investors think of nVent Electric? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned.
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