Four Days Left To Buy Nick Scali Limited (ASX:NCK) Before The Ex-Dividend Date

It looks like Nick Scali Limited (ASX:NCK) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 5th of October to receive the dividend, which will be paid on the 27th of October.

Nick Scali's upcoming dividend is AU$0.23 a share, following on from the last 12 months, when the company distributed a total of AU$0.47 per share to shareholders. Calculating the last year's worth of payments shows that Nick Scali has a trailing yield of 5.6% on the current share price of A$8.52. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Nick Scali

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Nick Scali paid out 91% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. Thankfully its dividend payments took up just 44% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Nick Scali's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if this were to happen repeatedly, we'd be concerned about whether the dividend is sustainable in a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Nick Scali's earnings per share have been growing at 20% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nick Scali has delivered 18% dividend growth per year on average over the past 10 years. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Is Nick Scali an attractive dividend stock, or better left on the shelf? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Nick Scali is paying out so much of its profit. All things considered, we are not particularly enthused about Nick Scali from a dividend perspective.

In light of that, while Nick Scali has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Nick Scali and you should be aware of them before buying any 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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.