Yahoo Finance Nufarm's (ASX:NUF) Shareholders Will Receive A Smaller Dividend Than Last Year
Nufarm Limited (ASX:NUF) is reducing its dividend from last year's comparable payment to A$0.04 on the 14th of June. This payment takes the dividend yield to 1.8%, which only provides a modest boost to overall returns.
Check out our latest analysis for Nufarm
Nufarm Doesn't Earn Enough To Cover Its Payments
Even a low dividend yield can be attractive if it is sustained for years on end. Even in the absence of profits, Nufarm is paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
EPS is forecast to rise very quickly over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 553%, which is unsustainable.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was A$0.10, compared to the most recent full-year payment of A$0.08. The dividend has shrunk at around 2.2% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Company Could Face Some Challenges Growing The Dividend
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nufarm has impressed us by growing EPS at 50% per year over the past five years. Even though the company is not profitable, it is growing at a solid clip. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.
Nufarm's Dividend Doesn't Look Sustainable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. Strong earnings growth means Nufarm has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.
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. As an example, we've identified 1 warning sign for Nufarm that you should be aware of before investing. Is Nufarm not quite the opportunity you were looking for? Why not check out our selection of top 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.
