Nictus (JSE:NCS) Will Pay A Larger Dividend Than Last Year At ZAR0.06

The board of Nictus Limited (JSE:NCS) has announced that it will be increasing its dividend by 20% on the 22nd of July to ZAR0.06, up from last year's comparable payment of ZAR0.05. This makes the dividend yield 6.3%, which is above the industry average.

See our latest analysis for Nictus

Nictus' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, Nictus' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share could rise by 17.9% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the payout ratio will be 26%, which is in the range that makes us comfortable with the sustainability of the dividend.

Nictus' Dividend Has Lacked Consistency

Nictus has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2015, the dividend has gone from ZAR0.03 total annually to ZAR0.05. This works out to be a compound annual growth rate (CAGR) of approximately 5.8% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Nictus might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Nictus has grown earnings per share at 18% per year over the past five years. Nictus definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Nictus' Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 4 warning signs for Nictus (of which 2 make us uncomfortable!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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