Is Nufarm Limited (ASX:NUF) A Smart Choice For Dividend Investors?

Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Nufarm Limited (ASX:NUF) has paid a dividend to shareholders. It currently yields 2.1%. Should it have a place in your portfolio? Let’s take a look at Nufarm in more detail.

See our latest analysis for Nufarm

Here’s how I find good dividend stocks

If you are a dividend investor, you should always assess these five key metrics:

• Is it the top 25% annual dividend yield payer?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has the amount of dividend per share grown over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

ASX:NUF Historical Dividend Yield December 5th 18

How well does Nufarm fit our criteria?

The current payout ratio for NUF is negative, which means that it is loss-making, and paying its dividend from its retained earnings.

When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Not only have dividend payouts from Nufarm fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.

Compared to its peers, Nufarm generates a yield of 2.1%, which is on the low-side for Chemicals stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Nufarm for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three important aspects you should further research:

1. Future Outlook: What are well-informed industry analysts predicting for NUF’s future growth? Take a look at our free research report of analyst consensus for NUF’s outlook.

2. Valuation: What is NUF worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether NUF is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.