National CineMedia, Inc. (NASDAQ:NCMI) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 2nd of March will not receive the dividend, which will be paid on the 17th of March.
National CineMedia's next dividend payment will be US$0.19 per share, on the back of last year when the company paid a total of US$0.68 to shareholders. Based on the last year's worth of payments, National CineMedia stock has a trailing yield of around 9.1% on the current share price of $8.395. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether National CineMedia can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. National CineMedia paid out 150% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 41% of its free cash flow in the past year.
It's good to see that while National CineMedia's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, National CineMedia's earnings per share have been growing at 15% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. National CineMedia has delivered an average of 1.7% per year annual increase in its dividend, based on the past ten years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Should investors buy National CineMedia for the upcoming dividend? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why National CineMedia is paying out so much of its profit. Overall, it's hard to get excited about National CineMedia from a dividend perspective.
Ever wonder what the future holds for National CineMedia? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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