Nine Entertainment Holdings (ASX:NEC) Is Paying Out Less In Dividends Than Last Year

Nine Entertainment Co. Holdings Limited's (ASX:NEC) dividend is being reduced from last year's payment covering the same period to A$0.05 on the 19th of October. This means that the annual payment will be 5.0% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Nine Entertainment Holdings

Nine Entertainment Holdings' Payment Has Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the company was paying out 101% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 64%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to rise by 50.9% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 68% which brings it into quite a comfortable range.

Nine Entertainment Holdings' Dividend Has Lacked Consistency

It's comforting to see that Nine Entertainment Holdings has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the dividend has gone from A$0.042 total annually to A$0.10. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. 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.

The Dividend Has Limited Growth Potential

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Nine Entertainment Holdings' EPS has fallen by approximately 14% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Nine Entertainment Holdings' Dividend Doesn't Look Sustainable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. 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. 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 Nine Entertainment Holdings that investors should take into consideration. 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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