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Next Fifteen Communications Group plc's (LON:NFC) dividend will be increasing from last year's payment of the same period to £0.045 on 25th of November. Although the dividend is now higher, the yield is only 2.1%, which is below the industry average.
See our latest analysis for Next Fifteen Communications Group
Next Fifteen Communications Group's Dividend Is Well Covered By Earnings
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. While Next Fifteen Communications Group is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 9.5%, which makes us pretty comfortable with the sustainability of the dividend.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from £0.0205 total annually to £0.168. This means that it has been growing its distributions at 23% per annum over that time. Next Fifteen Communications Group has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Next Fifteen Communications Group's EPS has fallen by approximately 81% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
Next Fifteen Communications Group's Dividend Doesn't Look Sustainable
In summary, while it's always good to see the dividend being raised, we don't think Next Fifteen Communications Group's payments are rock solid. 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.