NIC Inc. (NASDAQ:EGOV) is about to trade ex-dividend in the next four days. You can purchase shares before the 3rd of December in order to receive the dividend, which the company will pay on the 18th of December.
NIC's next dividend payment will be US$0.09 per share, on the back of last year when the company paid a total of US$0.36 to shareholders. Based on the last year's worth of payments, NIC stock has a trailing yield of around 1.5% on the current share price of $23.88. 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! We need to see whether the dividend is covered by earnings and if it's growing.
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. That's why it's good to see NIC paying out a modest 39% of its earnings. A useful secondary check can be to evaluate whether NIC generated enough free cash flow to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see NIC earnings per share are up 8.6% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, NIC has increased its dividend at approximately 1.8% a year on average.
To Sum It Up
Has NIC got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and NIC is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and NIC is halfway there. There's a lot to like about NIC, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks NIC is facing. For example, we've found 1 warning sign for NIC that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.