The board of Nine Entertainment Co. Holdings Limited (ASX:NEC) has announced that it will be paying its dividend of A$0.07 on the 20th of October, an increased payment from last year’s comparable dividend. This makes the dividend yield about the same as the industry average at 6.4%.
View our latest analysis for Nine Entertainment Holdings
Nine Entertainment Holdings’ Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Nine Entertainment Holdings’ dividend made up quite a large proportion of earnings but only 58% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
The next year is set to see EPS grow by 29.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 63%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Nine Entertainment Holdings’ Dividend Has Lacked Consistency
Looking back, Nine Entertainment Holdings’ dividend hasn’t been particularly consistent. If the company cuts once, it definitely isn’t argument against the possibility of it cutting in the future. The annual payment during the last 8 years was A$0.042 in 2014, and the most recent fiscal year payment was A$0.14. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. It’s not great to see that Nine Entertainment Holdings’ earnings per share has fallen at approximately 6.5% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In summary, while it’s always good to see the dividend being raised, we don’t think Nine Entertainment Holdings’ payments are rock solid. The payments haven’t been particularly stable and we don’t see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we’ve identified 1 warning sign for Nine Entertainment Holdings that investors need to be conscious of moving forward. Is Nine Entertainment Holdings not quite the opportunity you were looking for? Why not check out 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.
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