Nine Entertainment Holdings' (ASX:NEC) Dividend Will Be Reduced To A$0.04

Nine Entertainment Co. Holdings Limited (ASX:NEC) is reducing its dividend from last year's comparable payment to A$0.04 on the 18th of April. This means that the annual payment will be 4.6% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Nine Entertainment Holdings

Nine Entertainment Holdings' Earnings Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, the company was paying out 151% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 46%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Looking forward, earnings per share is forecast to rise by 173.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 57%, 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

Nine Entertainment Holdings has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2015, the annual payment back then was A$0.042, compared to the most recent full-year payment of A$0.08. This means that it has been growing its distributions at 7.4% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Nine Entertainment Holdings might have put its house in order since then, but we remain cautious.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Nine Entertainment Holdings' EPS has declined at around 23% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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.

Nine Entertainment Holdings' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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 probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for Nine Entertainment Holdings that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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