Yahoo Finance Dividend Investors: Don't Be Too Quick To Buy Nutrien Ltd. (TSE:NTR) For Its Upcoming Dividend
It looks like Nutrien Ltd. (TSE:NTR) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 30th of March will not receive this dividend, which will be paid on the 16th of April.
Nutrien's next dividend payment will be CA$0.45 per share, and in the last 12 months, the company paid a total of CA$1.80 per share. Looking at the last 12 months of distributions, Nutrien has a trailing yield of approximately 5.9% on its current stock price of CA$43.63. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Nutrien has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Nutrien
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year, Nutrien paid out 103% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's good to see that while Nutrien's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 explains why we're not overly excited about Nutrien's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
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, two years ago, Nutrien has lifted its dividend by approximately 6.1% a year on average.
To Sum It Up
Should investors buy Nutrien for the upcoming dividend? Earnings per share have been flat in recent times, which is, we suppose, better than seeing them shrink. Additionally, Nutrien is paying out quite a high percentage of its earnings, and more than half its cash flow, so it's hard to evaluate whether the company is reinvesting enough in its business to improve its situation. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Nutrien.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Nutrien. To help with this, we've discovered 3 warning signs for Nutrien that you should be aware of before investing in their shares.
If you're in the market for dividend stocks, we recommend checking our list of top 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.
