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Is It Smart To Buy National Express Group PLC (LON:NEX) Before It Goes Ex-Dividend?

Simply Wall St

Readers hoping to buy National Express Group PLC (LON:NEX) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 29th of August in order to be eligible for this dividend, which will be paid on the 20th of September.

National Express Group's next dividend payment will be UK£0.052 per share, and in the last 12 months, the company paid a total of UK£0.15 per share. Calculating the last year's worth of payments shows that National Express Group has a trailing yield of 3.5% on the current share price of £4.27. If you buy this business for its dividend, you should have an idea of whether National Express Group's dividend is reliable and sustainable. As a result, readers should always check whether National Express Group has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for National Express Group

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. National Express Group is paying out an acceptable 56% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

LSE:NEX Historical Dividend Yield, August 25th 2019

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. For this reason, we're glad to see National Express Group's earnings per share have risen 20% per annum over the last five years. National Express Group has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. National Express Group's dividend payments per share have declined at 4.2% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

To Sum It Up

Has National Express Group got what it takes to maintain its dividend payments? National Express Group's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about National Express Group, and we would prioritise taking a closer look at it.

Wondering what the future holds for National Express Group? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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.

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. Thank you for reading.