NSL Ltd (SGX:N02) is reducing its dividend from last year's comparable payment to SGD0.02 on the 4th of June. Despite the cut, the dividend yield of 2.9% will still be comparable to other companies in the industry.

Check out our latest analysis for NSL

NSL Might Find It Hard To Continue The Dividend

Unless the payments are sustainable, the dividend yield doesn't mean too much. Even though NSL isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. We generally think that cash flow is more important than accounting measures of profit, so we are fairly comfortable with the dividend at this level.

Looking forward, earnings per share could rise by 36.1% over the next year if the trend from the last few years continues. We like to see the company moving towards profitability, but this probably won't be enough for it to post positive net income this year. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of SGD0.10 in 2014 to the most recent total annual payment of SGD0.02. The dividend has fallen 80% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

The Company Could Face Some Challenges Growing The Dividend

With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. NSL has seen EPS rising for the last five years, at 36% per annum. While the company is not yet turning a profit, it is growing at a good rate. If profitability can be achieved soon and growth continues apace, this stock could certainly turn into a solid dividend payer.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've picked out 1 warning sign for NSL that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.