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Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Nucleus Financial Group plc (LON:NUC) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 17th of September will not receive the dividend, which will be paid on the 16th of October.
Nucleus Financial Group’s upcoming dividend is UK£0.01 a share, following on from the last 12 months, when the company distributed a total of UK£0.02 per share to shareholders. Last year’s total dividend payments show that Nucleus Financial Group has a trailing yield of 1.5% on the current share price of £1.365. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Nucleus Financial Group can afford its dividend, and if the dividend could grow.
See our latest analysis for Nucleus Financial Group
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Nucleus Financial Group has a low and conservative payout ratio of just 20% of its income after tax. 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 31% 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.Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Nucleus Financial Group’s earnings per share have risen 11% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Nucleus Financial Group has seen its dividend decline 15% per annum on average over the past two years, which is not great to see. It’s unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We’d hope it’s because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.To Sum It Up
From a dividend perspective, should investors buy or avoid Nucleus Financial Group? Nucleus Financial Group has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past two years, but the conservative payout ratio makes the current dividend look sustainable. There’s a lot to like about Nucleus Financial Group, and we would prioritise taking a closer look at it.
In light of that, while Nucleus Financial Group has an appealing dividend, it’s worth knowing the risks involved with this stock. Every company has risks, and we’ve spotted 1 warning sign for Nucleus Financial Group you should know about.
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.
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. 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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