It looks like nVent Electric plc (NYSE:NVT) is about to go ex-dividend in the next 3 days.  The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend.  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.   Accordingly, nVent Electric investors that purchase the stock on or after the 25th of April will not receive the dividend, which will be paid on the 10th of May.  

The company's next dividend payment will be US$0.19 per share, on the back of last year when the company paid a total of US$0.76 to shareholders.  Based on the last year's worth of payments, nVent Electric stock has a trailing yield of around 1.1% on the current share price of US$71.63.    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!  As a result, readers should always check whether nVent Electric has been able to grow its dividends, or if the dividend might be cut.

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut.   nVent Electric paid out just 21% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.     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.     Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.    

It's positive to see that nVent Electric's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:NVT Historic Dividend April 21st 2024

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving.   Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time.     That's why it's comforting to see nVent Electric's earnings have been skyrocketing, up 21% per annum for the past five years.        nVent Electric is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip.  Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.    

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth.     In the last six years, nVent Electric has lifted its dividend by approximately 1.4% a year on average.      It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.  

To Sum It Up

Should investors buy nVent Electric for the upcoming dividend?       nVent Electric has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination.         It's a promising combination that should mark this company worthy of closer attention.  

So while nVent Electric looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock.     Be aware that nVent Electric is showing 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...  

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.