NRW Holdings Limited (ASX:NWH) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of October to A$0.07. This takes the dividend yield to 5.1%, which shareholders will be pleased with.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that NRW Holdings' stock price has increased by 54% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
NRW Holdings' Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, NRW Holdings was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The company is clearly earning enough to pay this type of dividend, but it is definitely focused on returning cash to shareholders, rather than growing the business.
Over the next year, EPS is forecast to expand by 23.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 63% by next year, which is in a pretty sustainable range.
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. The annual payment during the last 10 years was A$0.16 in 2012, and the most recent fiscal year payment was A$0.14. The dividend has shrunk at around 1.3% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. NRW Holdings has impressed us by growing EPS at 19% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
Our Thoughts On NRW Holdings' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While NRW Holdings is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think NRW Holdings is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for NRW Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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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