NEXT (LON:NXT) Will Pay A Dividend Of £0.66
NEXT plc (LON:NXT) will pay a dividend of £0.66 on the 3rd of January. This makes the dividend yield 2.7%, which will augment investor returns quite nicely.
View our latest analysis for NEXT
NEXT's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, NEXT's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 15.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 31%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was £1.05, compared to the most recent full-year payment of £2.06. This implies that the company grew its distributions at a yearly rate of about 7.0% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Has Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. NEXT has impressed us by growing EPS at 6.3% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
In Summary
Overall, we think NEXT is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 3 warning signs for NEXT that investors should know about before committing capital to this stock. 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.
