Newell Brands Inc. (NASDAQ:NWL) has announced that it will pay a dividend of $0.23 per share on the 15th of December. This makes the dividend yield 7.0%, which will augment investor returns quite nicely.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Newell Brands’ stock price has reduced by 37% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
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Newell Brands’ Payment Has Solid Earnings Coverage
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Prior to this announcement, Newell Brands’ earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Over the next year, EPS is forecast to expand by 48.7%. If the dividend continues on this path, the payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.
Newell Brands Has A Solid Track Record
Even over a long history of paying dividends, the company’s distributions have been remarkably stable. The annual payment during the last 10 years was $0.32 in 2012, and the most recent fiscal year payment was $0.92. This means that it has been growing its distributions at 11% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven’t been any cuts for a long time.
Newell Brands May Find It Hard To Grow The Dividend
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren’t all that rosy. In the last five years, Newell Brands’ earnings per share has shrunk at approximately 4.5% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Our Thoughts On Newell Brands’ Dividend
Overall, we don’t think this company makes a great dividend stock, even though the dividend wasn’t cut this year. While Newell Brands is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Newell Brands has 3 warning signs (and 1 which is significant) we think you should know about. Is Newell Brands 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.