Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Nexa Resources S.A. (NYSE:NEXA) has begun paying dividends recently. It now yields 4.6%. Should it have a place in your portfolio? Let’s take a look at Nexa Resources in more detail.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Nexa Resources fit our criteria?
Nexa Resources has a trailing twelve-month payout ratio of 94%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 43%, which, assuming the share price stays the same, leads to a dividend yield of 4.0%. Moreover, EPS should increase to $0.65, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Unfortunately, it is really too early to view Nexa Resources as a dividend investment. It has only been paying out dividend for the past one year. Generally, the rule of thumb for determining whether a stock is a reliable dividend payer is that it should be consistently paying dividends for the past 10 years or more. Clearly there’s a long road ahead before we can ascertain whether NEXA one as a stable dividend player.
In terms of its peers, Nexa Resources produces a yield of 4.6%, which is high for Metals and Mining stocks.
If Nexa Resources is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for NEXA’s future growth? Take a look at our free research report of analyst consensus for NEXA’s outlook.
- Valuation: What is NEXA worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether NEXA is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.