Nictus (JSE:NCS) Has Announced That Its Dividend Will Be Reduced To R0.03

Nictus Limited's (JSE:NCS) dividend is being reduced to R0.03 on the 25th of July. Despite the cut, the dividend yield of 4.3% will still be comparable to other companies in the industry.

See our latest analysis for Nictus

Nictus' 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, Nictus' dividend was only 32% of earnings, however it was paying out 151% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

EPS is set to fall by 1.9% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 35%, which is definitely feasible to continue.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from R0.14 to R0.03. The dividend has fallen 79% over that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Nictus May Find It Hard To Grow The Dividend

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Unfortunately, Nictus' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Nictus' Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While Nictus is earning enough to cover the payments, the cash flows are lacking. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 5 warning signs for Nictus (2 make us uncomfortable!) that you should be aware of before investing. Is Nictus not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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