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Read This Before Considering Nick Scali Limited (ASX:NCK) For Its Upcoming AU$0.25 Dividend

Simply Wall St

Nick Scali Limited (ASX:NCK) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 5th of March to receive the dividend, which will be paid on the 27th of March.

Nick Scali's next dividend payment will be AU$0.25 per share. Last year, in total, the company distributed AU$0.45 to shareholders. Based on the last year's worth of payments, Nick Scali stock has a trailing yield of around 6.3% on the current share price of A$7.15. If you buy this business for its dividend, you should have an idea of whether Nick Scali's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Nick Scali

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. Last year Nick Scali paid out 96% of its profits as dividends to shareholders, suggesting the dividend is not well covered by 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. It paid out 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's good to see that while Nick Scali's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.

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

ASX:NCK Historical Dividend Yield, March 1st 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Nick Scali has grown its earnings rapidly, up 22% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, ten years ago, Nick Scali has lifted its dividend by approximately 22% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

To Sum It Up

Is Nick Scali worth buying for its dividend? Nick Scali has been growing its earnings per share nicely, although judging by the difference between its profit and cashflow payout ratios, the company might have reported some write-offs over the last year. In summary, while it has some positive characteristics, we're not inclined to race out and buy Nick Scali today.

Curious what other investors think of Nick Scali? See what analysts 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.