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Novozymes A/S (CPH:NZYM B) Will Pay A ø5.25 Dividend In 3 Days

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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Novozymes A/S (CPH:NZYM B) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 27th of February will not receive the dividend, which will be paid on the 2nd of March.

Novozymes's next dividend payment will be ø5.25 per share. Last year, in total, the company distributed ø5.25 to shareholders. Based on the last year's worth of payments, Novozymes has a trailing yield of 1.4% on the current stock price of DKK375. 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.

See our latest analysis for Novozymes

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Novozymes paying out a modest 47% of its earnings. 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 65% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Novozymes'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

CPSE:NZYM B Historical Dividend Yield, February 23rd 2020
CPSE:NZYM B Historical Dividend Yield, February 23rd 2020

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Novozymes, with earnings per share up 6.4% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Novozymes has delivered an average of 16% per year annual increase in its dividend, based on the past ten years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Novozymes? Earnings per share growth has been modest, and it's interesting that Novozymes is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's hard to get excited about Novozymes from a dividend perspective.

Wondering what the future holds for Novozymes? See what the 17 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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. Thank you for reading.