Read This Before Considering NexLiving Communities Inc. (CVE:NXLV) For Its Upcoming CA$0.01 Dividend
It looks like NexLiving Communities Inc. (CVE:NXLV) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase NexLiving Communities' shares before the 4th of September to receive the dividend, which will be paid on the 25th of September.
The company's next dividend payment will be CA$0.01 per share, on the back of last year when the company paid a total of CA$0.04 to shareholders. Last year's total dividend payments show that NexLiving Communities has a trailing yield of 1.7% on the current share price of CA$2.30. 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! We need to see whether the dividend is covered by earnings and if it's growing.
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. NexLiving Communities is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether NexLiving Communities generated enough free cash flow to afford its dividend. The good news is it paid out just 5.8% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Check out our latest analysis for NexLiving Communities
Click here to see how much of its profit NexLiving Communities paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. NexLiving Communities's earnings per share have fallen at approximately 7.4% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. NexLiving Communities's dividend payments are effectively flat on where they were six years ago. When earnings are declining yet the dividends are flat, typically the company is either paying out a higher portion of its earnings, or paying out of cash or debt on the balance sheet, neither of which is ideal.
The Bottom Line
From a dividend perspective, should investors buy or avoid NexLiving Communities? NexLiving Communities has comfortably low cash and profit payout ratios, which may mean the dividend is sustainable even in the face of a sharp decline in earnings per share. Still, we consider declining earnings to be a warning sign. Overall, it's hard to get excited about NexLiving Communities from a dividend perspective.
In light of that, while NexLiving Communities has an appealing dividend, it's worth knowing the risks involved with this stock. For instance, we've identified 4 warning signs for NexLiving Communities (1 is potentially serious) you should be aware of.
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.
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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.