Nine Entertainment Holdings (ASX:NEC) Has Announced That It Will Be Increasing Its Dividend To A$0.53

The board of Nine Entertainment Co. Holdings Limited (ASX:NEC) has announced that it will be paying its dividend of A$0.53 on the 26th of September, an increased payment from last year's comparable dividend. This takes the annual payment to 4.3% of the current stock price, which is about average for the industry.

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Estimates Indicate Nine Entertainment Holdings' Could Struggle to Maintain Dividend Payments In The Future

Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Nine Entertainment Holdings' dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

The next 12 months is set to see EPS grow by 76.4%. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

View our latest analysis for Nine Entertainment Holdings

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was A$0.084, compared to the most recent full-year payment of A$0.075. This works out to be a decline of approximately 1.1% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Nine Entertainment Holdings Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Nine Entertainment Holdings has grown earnings per share at 36% per year over the past five years. While EPS is growing rapidly, Nine Entertainment Holdings paid out a very high 114% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Our Thoughts On Nine Entertainment Holdings' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs 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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