Nelnet (NYSE:NNI) Will Pay A Larger Dividend Than Last Year At US$0.24

Nelnet, Inc.'s (NYSE:NNI) dividend will be increasing to US$0.24 on 15th of December. This takes the annual payment to 1.0% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for Nelnet

Nelnet's Earnings Easily Cover the Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Before making this announcement, Nelnet was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 18.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 6.6%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nelnet Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the dividend has gone from US$0.28 to US$0.96. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Nelnet has impressed us by growing EPS at 18% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Nelnet Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Nelnet is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Nelnet (of which 1 doesn't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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