Netwealth Group Limited's (ASX:NWL) dividend will be increasing from last year's payment of the same period to A$0.13 on 21st of September. Despite this raise, the dividend yield of 1.7% is only a modest boost to shareholder returns.

View our latest analysis for Netwealth Group

Netwealth Group's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. The last dividend made up a very large portion of earnings and also represented 82% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Over the next year, EPS is forecast to expand by 76.8%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 58% which would be quite comfortable going to take the dividend forward. historic-dividend

Netwealth Group Is Still Building Its Track Record

It is great to see that Netwealth Group has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2018, the dividend has gone from A$0.0538 total annually to A$0.26. This implies that the company grew its distributions at a yearly rate of about 37% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Netwealth Group's Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Netwealth Group has grown earnings per share at 28% per year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Netwealth Group hasn't been doing.

Our Thoughts On Netwealth Group's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 14 analysts we track are forecasting for Netwealth Group for free  with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.