It Might Not Be A Great Idea To Buy Naturhouse Health, S.A. (BME:NTH) For Its Next Dividend
Readers hoping to buy Naturhouse Health, S.A. (BME:NTH) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Naturhouse Health's shares before the 23rd of July to receive the dividend, which will be paid on the 27th of July.
The company's next dividend payment will be €0.0405 per share, and in the last 12 months, the company paid a total of €0.20 per share. Based on the last year's worth of payments, Naturhouse Health stock has a trailing yield of around 7.6% on the current share price of €2.62. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Naturhouse Health has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 89% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Naturhouse Health paid out more free cash flow than it generated - 154%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Naturhouse Health paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were Naturhouse Health to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
View our latest analysis for Naturhouse Health
Click here to see how much of its profit Naturhouse Health paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that Naturhouse Health's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Naturhouse Health has lifted its dividend by approximately 7.2% a year on average.
The Bottom Line
Is Naturhouse Health worth buying for its dividend? In addition to earnings being flat, Naturhouse Health is paying out a reasonable percentage of its earnings as profits. However, the dividend was not well covered by free cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Naturhouse Health. Every company has risks, and we've spotted 2 warning signs for Naturhouse Health (of which 1 is a bit concerning!) you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.