Nine Entertainment Co. Holdings Limited (ASX:NEC) has announced that it will be increasing its dividend from last year’s comparable payment on the 26th of September to A$0.53. This takes the annual payment to 4.5% of the current stock price, which is about average for the industry.
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Before making this announcement, Nine Entertainment Holdings’ dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don’t think there is much reason to worry.
Over the next year, EPS is forecast to expand by 76.4%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.
See our latest analysis for Nine Entertainment Holdings
The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2015, the dividend has gone from A$0.084 total annually to A$0.075. Doing the maths, this is a decline of about 1.1% per year. Declining dividends isn’t generally what we look for as they can indicate that the company is running into some challenges.
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Nine Entertainment Holdings has impressed us by growing EPS at 36% per year over the past five years. EPS has been growing well, but Nine Entertainment Holdings has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
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. 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. However, there are other things to consider for investors when analysing stock performance. As an example, we’ve identified 2 warning signs for Nine Entertainment Holdings that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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.
‘ The preceding article may include information circulated by third parties ’
‘ Some details of this article were extracted from the following source finance.yahoo.com ’
