Nine Entertainment Holdings' (ASX:NEC) Shareholders Will Receive A Bigger Dividend Than Last Year

Nine Entertainment Co. Holdings Limited (ASX:NEC) will increase its dividend from last year's comparable payment on the 20th of October to A$0.07. This takes the annual payment to 6.5% of the current stock price, which is about 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. Before this announcement, Nine Entertainment Holdings was paying out 80% of earnings, but a comparatively small 58% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Looking forward, earnings per share is forecast to rise by 29.3% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 63%, 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

Looking back, Nine Entertainment Holdings' dividend hasn't been particularly consistent. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The annual payment during the last 8 years was A$0.042 in 2014, and the most recent fiscal year payment was A$0.14. This means that it has been growing its distributions at 16% per annum 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.

Dividend Growth May Be Hard To Come By

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. In the last five years, Nine Entertainment Holdings' earnings per share has shrunk at approximately 6.5% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Nine Entertainment Holdings' Dividend

Overall, we always like to see the dividend being raised, but we don't think Nine Entertainment Holdings will make a great income stock. 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. Overall, we don't think this company has the makings of a good income stock.

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 1 warning sign for Nine Entertainment Holdings that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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