Why You Might Be Interested In Nutrien Ltd. (TSE:NTR) For Its Upcoming Dividend
Readers hoping to buy Nutrien Ltd. (TSE:NTR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Nutrien's shares on or after the 27th of March, you won't be eligible to receive the dividend, when it is paid on the 11th of April.
The company's next dividend payment will be US$0.54 per share, on the back of last year when the company paid a total of US$2.16 to shareholders. Based on the last year's worth of payments, Nutrien stock has a trailing yield of around 4.0% on the current share price of CA$72.58. If you buy this business for its dividend, you should have an idea of whether Nutrien's dividend is reliable and sustainable. So we need to investigate whether Nutrien can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Nutrien
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. It paid out 84% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in 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 distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Nutrien'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Nutrien's earnings have been skyrocketing, up 47% per annum for the past five years. The company is paying out more than three-quarters of its earnings, but it is also generating strong earnings growth.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past six years, Nutrien has increased its dividend at approximately 5.1% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Nutrien is keeping back more of its profits to grow the business.
Final Takeaway
Should investors buy Nutrien for the upcoming dividend? Nutrien'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. Overall we think this is an attractive combination and worthy of further research.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 4 warning signs for Nutrien you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full 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.
