The board of Netwealth Group Limited (ASX:NWL) has announced that the dividend on 29th of September will be increased to A$0.10, which will be 5.3% higher than last year's payment of A$0.095 which covered the same period. Although the dividend is now higher, the yield is only 1.5%, which is below the industry average.
Netwealth Group's Payment Has Solid Earnings Coverage
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Netwealth Group's was paying out quite a large proportion of earnings and 86% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.
Over the next year, EPS is forecast to expand by 92.1%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 59% which brings it into quite a comfortable range.
Netwealth Group Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2018, the annual payment back then was A$0.0538, compared to the most recent full-year payment of A$0.20. This works out to be a compound annual growth rate (CAGR) of approximately 39% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Netwealth Group's Dividend Might Lack Growth
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Netwealth Group has seen EPS rising for the last five years, at 25% per annum. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Netwealth Group is not retaining those earnings to reinvest in growth.
Our Thoughts On Netwealth Group's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means Netwealth Group has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 11 Netwealth Group analysts we track are forecasting continued growth with our free report on analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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