Readers hoping to buy Netwealth Group Limited (ASX:NWL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 26th of August to receive the dividend, which will be paid on the 26th of September.
Netwealth Group's next dividend payment will be AU$0.066 per share. Last year, in total, the company distributed AU$0.13 to shareholders. Based on the last year's worth of payments, Netwealth Group stock has a trailing yield of around 1.7% on the current share price of A$7.72. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Netwealth Group can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 82% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth We'd be concerned if earnings began to decline.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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. It's encouraging to see Netwealth Group has grown its earnings rapidly, up 30% a year for the past five years.
Given that Netwealth Group has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Has Netwealth Group got what it takes to maintain its dividend payments? Netwealth Group has an acceptable payout ratio and its earnings per share have been improving at a decent rate. We think this is a pretty attractive combination, and would be interested in investigating Netwealth Group more closely.
Curious what other investors think of Netwealth Group? 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.
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 email@example.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.