Yahoo Finance Norcros (LON:NXR) Is Paying Out A Larger Dividend Than Last Year
Norcros plc (LON:NXR) has announced that it will be increasing its periodic dividend on the 10th of January to £0.034, which will be 9.7% higher than last year's comparable payment amount of £0.031. This will take the annual payment to 5.8% of the stock price, which is above what most companies in the industry pay.
Check out our latest analysis for Norcros
Norcros' Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, prior to this announcement, Norcros was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.
Over the next year, EPS is forecast to expand by 16.7%. If the dividend continues along recent trends, we estimate the payout ratio will be 35%, which is in the range that makes us comfortable with the sustainability of the dividend.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the dividend has gone from £0.042 total annually to £0.103. This means that it has been growing its distributions at 9.4% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Norcros has grown earnings per share at 15% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Norcros' prospects of growing its dividend payments in the future.
We should note that Norcros has issued stock equal to 10% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
Our Thoughts On Norcros' Dividend
In summary, while it's always good to see the dividend being raised, we don't think Norcros' payments are rock solid. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Norcros has been making. Overall, we don't think this company has the makings of a good income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for Norcros that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated 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.
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