Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see nVent Electric plc (NYSE:NVT) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 17th of October will not receive this dividend, which will be paid on the 1st of November.
nVent Electric's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$0.7 per share to shareholders. Last year's total dividend payments show that nVent Electric has a trailing yield of 3.5% on the current share price of $20.18. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. nVent Electric paid out a comfortable 49% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 46% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. From this perspective, we're disturbed to see earnings per share plunged 23% over the last 12 months, and we'd wonder if the company has had some kind of major event that has skewed the calculation.
Given that nVent Electric has only been paying a dividend for a year, there's not much of a past history to draw insight from.
To Sum It Up
From a dividend perspective, should investors buy or avoid nVent Electric? nVent Electric has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of nVent Electric's dividend merits.
Wondering what the future holds for nVent Electric? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.