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Is It Worth Considering NRW Holdings Limited (ASX:NWH) For Its Upcoming Dividend?

Simply Wall St

NRW Holdings Limited (ASX:NWH) is about to trade ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 27th of March will not receive this dividend, which will be paid on the 15th of April.

NRW Holdings's next dividend payment will be AU$0.025 per share, on the back of last year when the company paid a total of AU$0.05 to shareholders. Based on the last year's worth of payments, NRW Holdings has a trailing yield of 3.7% on the current stock price of A$1.335. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for NRW Holdings

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see NRW Holdings paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether NRW Holdings generated enough free cash flow to afford its dividend. It distributed 33% 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.

ASX:NWH Historical Dividend Yield, March 22nd 2020

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. NRW Holdings's earnings per share have fallen at approximately 9.0% a year over the previous five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

We'd also point out that NRW Holdings issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, NRW Holdings has lifted its dividend by approximately 9.6% a year on average.

To Sum It Up

Is NRW Holdings worth buying for its dividend? NRW Holdings has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's hard to get excited about NRW Holdings from a dividend perspective.

In light of that, while NRW Holdings has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 5 warning signs for NRW Holdings you should know about.

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.

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.