Income Investors Should Know That Nu-World Holdings Limited (JSE:NWL) Goes Ex-Dividend Soon

Nu-World Holdings Limited (JSE:NWL) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Nu-World Holdings' shares before the 12th of December in order to be eligible for the dividend, which will be paid on the 18th of December.

The company's upcoming dividend is R1.25 a share, following on from the last 12 months, when the company distributed a total of R1.25 per share to shareholders. Last year's total dividend payments show that Nu-World Holdings has a trailing yield of 4.8% on the current share price of ZAR26.26. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Nu-World Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Nu-World Holdings paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Nu-World Holdings generated enough free cash flow to afford its dividend. It paid out 15% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Nu-World Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see how much of its profit Nu-World Holdings paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Nu-World Holdings's earnings per share have dropped 18% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Nu-World Holdings has lifted its dividend by approximately 7.7% a year on average.

The Bottom Line

Is Nu-World Holdings an attractive dividend stock, or better left on the shelf? 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. To summarise, Nu-World Holdings looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Nu-World Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. To that end, you should learn about the 4 warning signs we've spotted with Nu-World Holdings (including 1 which doesn't sit too well with us).

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.