nib holdings' (ASX:NHF) Dividend Will Be Increased To A$0.15

nib holdings limited (ASX:NHF) has announced that it will be increasing its dividend from last year's comparable payment on the 3rd of October to A$0.15. This takes the annual payment to 3.7% of the current stock price, which is about average for the industry.

Check out our latest analysis for nib holdings

nib holdings' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by nib holdings' earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 15.2%. If the dividend continues on this path, the payout ratio could be 65% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was A$0.10 in 2013, and the most recent fiscal year payment was A$0.30. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

We Could See nib holdings' Dividend Growing

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. We are encouraged to see that nib holdings has grown earnings per share at 6.9% per year over the past five years. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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 instance, we've picked out 3 warning signs for nib holdings that investors should take into consideration. Is nib holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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