Nordstrom, Inc. (NYSE: JWN) recently announced a dividend payout of $0.19 per share, scheduled for March 27th. With an annual payment representing 4.3% of the current stock price, Nordstrom’s dividend yield exceeds the industry average.
However, the sustainability of this dividend is of utmost importance, especially considering the company’s earnings coverage and dividend history.
Earnings Coverage and Sustainability
While a strong dividend yield is appealing, it must be supported by sustainable earnings. However, Nordstrom’s last payment wasn’t adequately covered by earnings, indicating potential strain on the balance sheet if this trend persists.
Looking ahead, forecasted earnings per share are expected to rise significantly in the coming year, which could improve the payout ratio to a more comfortable level of 18%.
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Dividend Volatility and History
Nordstrom’s dividend history has been marked by instability, including at least one dividend cut in the last decade.
Over the past ten years, the annual total dividend has declined from $1.20 in 2014 to the most recent annual payment of $0.76, representing a decline of approximately 4.5% per year.
Such a trend of decreasing dividends raises concerns for income investors.
Dividend Growth Potential
Given the unstable dividend history, it’s crucial to assess the company’s earnings per share growth potential, which serves as an indicator of future dividend growth.
Unfortunately, Nordstrom has experienced a 25% decline in earnings per share over the past five years, posing challenges for sustaining dividend payments. While earnings are predicted to rise in the next year, a consistent track record of earnings growth is necessary to instill confidence in the dividend’s stability.
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Overall Assessment
Despite the stable dividend payment this year, Nordstrom’s dividend may not be an attractive option for income investors due to concerns about sustainability and consistency.
While the company appears to be stretching itself to maintain significant dividend payments, the lack of reliability raises doubts about its suitability as an income stock. Investors may prefer companies with a more stable dividend policy to ensure consistent returns over time.
Dividend Policy Falls Short
Nordstrom’s dividend payout raises concerns about sustainability and reliability, given the company’s unstable dividend history and declining earnings per share.
Income investors may find more attractive options elsewhere, as Nordstrom’s dividend policy lacks the stability and consistency desired for long-term income generation.
While dividend yield is important, it must be supported by sustainable earnings growth to provide investors with confidence in the company’s ability to maintain dividend payments over time.
Poor Performance Tied to Decline in Retail Industry
It is worth noting that Nordstrom’s performance is closely tied to the retail industry, which has been undergoing significant transformations due to shifts in consumer behavior and the rise of e-commerce.
The company faces competition not only from traditional brick-and-mortar retailers but also from online giants like Amazon.
As such, investors should consider the broader market trends and competitive landscape when evaluating Nordstrom’s dividend potential.
Moreover, Nordstrom’s dividend payout ratio, which measures the proportion of earnings paid out as dividends, is a key metric to monitor.
A high payout ratio indicates that the company is distributing a large portion of its profits to shareholders, leaving less room for reinvestment in the business or for weathering economic downturns.
On the other hand, a low payout ratio may suggest that the company has the capacity to increase dividends in the future or invest in growth opportunities.
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I’m Marcus Reynolds, a versatile writer known for connecting the dots between various news topics. My writing offers clear and thought-provoking insights into current events worldwide. I strive to keep you informed and engaged, making the ever-evolving world of news easier to navigate and understand.
