Consider this before buying Nucleus Financial Group Plc (LON:NUC) for its 1.9% dividend

Dividends can be underrated, but they make up a significant portion of investment returns and play a significant role in compounding long-term returns. Recently, Nucleus Financial Group Plc (LON:NUC) started paying dividends to shareholders. Today, it yields 1.9%. Does Nucleus Financial Group tick all the boxes of a great dividend stock? Below, I’ll provide my analysis.

Check out our latest analysis for Nucleus Financial Group

5 Questions to Ask Before Buying a Dividend Stock

Whenever I look at a potential dividend stock investment, I always check these five parameters:

• Does it pay an annual return higher than 75% of dividend-paying companies?

• Has its dividend been stable in the past (i.e. no missed payments or significant cuts)?

• Has the dividend per share increased over the last two years?

• Can it afford to pay the current rate of dividends from its profits?

• Will the company be able to continue paying dividends based on future earnings growth?

How is Nucleus Financial Group doing?

Based on the last twelve months, the company is currently paying out 23% of its earnings as dividends, meaning that the dividend is covered by profits. Furthermore, analysts have not forecasted any dividends per share for the future, making it difficult to determine what return shareholders should expect and whether the current payout is sustainable in the future.

When assessing the projected sustainability of a dividend, the company’s cash flow should also be considered. Companies with strong cash flow can maintain a higher payout ratio, while companies with weaker cash flow generally cannot.

Reliability is an important factor for dividend stocks, especially for income investors who want a solid payment history and a positive outlook for future payouts. The reality is that it is too early to consider Nucleus Financial Group as a dividend investment. Last year the company paid its first dividend, so it’s still early. Common practice for reliable payers is to look for around ten years of history.

Relative to its peers, Nucleus Financial Group yields 1.9%, which is on the low side for software stocks.

Next steps:

After taking a closer look at Nucleus Financial Group’s performance, it’s easy to see why you should be cautious about investing in the company purely for the dividend. But if you’re not exclusively a dividend investor, the stock could still be an attractive investment opportunity. Since this is a dividend analysis only, I recommend taking ample time to understand its core business and determine whether the company and its investment assets align with your overall goals. Below, I have compiled three relevant factors that you should consider in more detail:

1. Future prospects: What do knowledgeable industry analysts predict for NUC’s future growth? Take a look at our free research report on analyst consensus for NUC’s outlook.

2. Assessment: What is NUC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The Intrinsic Value infographic in our free research report helps visualize whether NUC is currently mispriced by the market.

3. Dividend Rockstars:Are there companies with better dividends and stronger fundamentals? Check out our free list of these great stocks here.

To help readers see beyond the short-term volatility of the financial market, we aim to provide you with long-term, focused research analysis based solely on fundamental data. Note that our analysis does not take into account the latest announcements of price-sensitive companies.

The author is an independent contributor and, at the time of publication, had no position in any stocks mentioned. For errors that require correction, please contact the editor at [email protected].