Nova Wellness Group Berhad's (KLSE:NOVA) Upcoming Dividend Will Be Larger Than Last Year's

Simply Wall St
·3 min read

Nova Wellness Group Berhad (KLSE:NOVA) has announced that it will be increasing its periodic dividend on the 16th of March to MYR0.0205, which will be 2.5% higher than last year's comparable payment amount of MYR0.02. This will take the dividend yield to an attractive 3.7%, providing a nice boost to shareholder returns.

View our latest analysis for Nova Wellness Group Berhad

Nova Wellness Group Berhad's Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Nova Wellness Group Berhad's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

The next year is set to see EPS grow by 64.9%. If the dividend continues on this path, the payout ratio could be 8.9% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

Nova Wellness Group Berhad's Dividend Has Lacked Consistency

Looking back, the dividend has been unstable but with a relatively short history, we think it may be a bit early to draw conclusions about long term dividend sustainability. Since 2019, the dividend has gone from MYR0.018 total annually to MYR0.033. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Nova Wellness Group Berhad has grown earnings per share at 9.4% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

Our Thoughts On Nova Wellness Group Berhad's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Nova Wellness Group Berhad (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of 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.

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