Nu Skin Enterprises, Inc. (NYSE:NUS) will increase its dividend on the 9th of March to US$0.39. This will take the annual payment to 2.8% of the stock price, which is above what most companies in the industry pay.
Nu Skin Enterprises' Payment Has Solid Earnings Coverage
A big dividend yield for a few years doesn't mean much if it can't be sustained. The last payment was quite easily covered by earnings, but it made up 105% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
The next year is set to see EPS grow by 42.8%. Assuming the dividend continues along recent trends, we think the payout ratio could be 37% by next year, which is in a pretty sustainable range.
Nu Skin Enterprises Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the first annual payment was US$0.54, compared to the most recent full-year payment of US$1.54. This means that it has been growing its distributions at 11% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The Dividend's Growth Prospects Are Limited
Investors could be attracted to the stock based on the quality of its payment history. Earnings has been rising at 2.7% per annum over the last five years, which admittedly is a bit slow. The company has been growing at a pretty soft 2.7% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While Nu Skin Enterprises is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Earnings growth generally bodes well for the future value of company dividend payments. See if the 5 Nu Skin Enterprises analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
What are the risks and opportunities for Nu Skin Enterprises?
Trading at 26% below our estimate of its fair value
Earnings are forecast to grow 26.79% per year
Significant insider selling over the past 3 months
Large one-off items impacting financial results
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