Yahoo Finance It Might Be Better To Avoid Newell Brands Inc.'s (NASDAQ:NWL) Upcoming Dividend
It looks like Newell Brands Inc. (NASDAQ:NWL) is about to go ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 27th of February will not receive the dividend, which will be paid on the 13th of March.
Newell Brands's next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.92 to shareholders. Based on the last year's worth of payments, Newell Brands stock has a trailing yield of around 4.8% on the current share price of $19.23. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Newell Brands can afford its dividend, and if the dividend could grow.
See our latest analysis for Newell Brands
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. An unusually high payout ratio of 209% of its profit suggests something is happening other than the usual distribution of profits to shareholders. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 50% of its free cash flow as dividends, within the usual range for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Newell Brands fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Newell Brands's earnings per share have fallen at approximately 20% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Newell Brands has delivered 16% dividend growth per year on average over the past ten years. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. Newell Brands is already paying out 209% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
The Bottom Line
Is Newell Brands worth buying for its dividend? It's never fun to see a company's earnings per share in retreat. What's more, Newell Brands is paying out a majority of its earnings and over half its free cash flow. It's hard to say if the business has the financial resources and time to turn things around without cutting the dividend. Bottom line: Newell Brands has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Wondering what the future holds for Newell Brands? See what the ten analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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