Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Nelco Limited (NSE:NELCO) is about to trade ex-dividend in the next 2 days. You can purchase shares before the 15th of July in order to receive the dividend, which the company will pay on the 23rd of August.
Nelco's upcoming dividend is ₹1.50 a share, following on from the last 12 months, when the company distributed a total of ₹1.50 per share to shareholders. Calculating the last year's worth of payments shows that Nelco has a trailing yield of 0.5% on the current share price of ₹286.55. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Nelco has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Nelco has a low and conservative payout ratio of just 15% of its income after tax. Nelco paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Nelco's earnings have been skyrocketing, up 58% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nelco has delivered an average of 11% per year annual increase in its dividend, based on the past 9 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Has Nelco got what it takes to maintain its dividend payments? Nelco has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past nine years, but the conservative payout ratio makes the current dividend look sustainable. Nelco looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious about whether Nelco has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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.
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 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. Thank you for reading.