Nu Skin Enterprises (NYSE:NUS) Will Pay A Dividend Of $0.385

Nu Skin Enterprises, Inc. (NYSE:NUS) will pay a dividend of $0.385 on the 7th of December. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.

Our analysis indicates that NUS is potentially undervalued!

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. Prior to this announcement, the company was paying out 201% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 59%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 39% which is fairly sustainable.

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. The dividend has gone from an annual total of $0.80 in 2012 to the most recent total annual payment of $1.54. This implies that the company grew its distributions at a yearly rate of about 6.8% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Over the past five years, it looks as though Nu Skin Enterprises' EPS has declined at around 23% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Nu Skin Enterprises' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 4 warning signs for Nu Skin Enterprises that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.