Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Nu Skin Enterprises, Inc. (NYSE:NUS) is about to go ex-dividend in just 3 days. Investors can purchase shares before the 29th of August in order to be eligible for this dividend, which will be paid on the 11th of September.
Nu Skin Enterprises's next dividend payment will be US$0.37 per share. Last year, in total, the company distributed US$1.48 to shareholders. Looking at the last 12 months of distributions, Nu Skin Enterprises has a trailing yield of approximately 3.7% on its current stock price of $40.11. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
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. Nu Skin Enterprises is paying out an acceptable 65% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year it paid out 53% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Nu Skin Enterprises'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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we're concerned to see Nu Skin Enterprises's earnings per share have dropped 18% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Nu Skin Enterprises has lifted its dividend by approximately 13% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
Has Nu Skin Enterprises got what it takes to maintain its dividend payments? While earnings per share are shrinking, it's encouraging to see that at least Nu Skin Enterprises's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.
Ever wonder what the future holds for Nu Skin Enterprises? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.