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Next Fifteen Communications Group plc's (LON:NFC) dividend will be increasing to UK£0.084 on 12th of August. Even though the dividend went up, the yield is still quite low at only 1.4%.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Next Fifteen Communications Group's stock price has reduced by 32% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
Next Fifteen Communications Group's Distributions May Be Difficult To Sustain
Even a low dividend yield can be attractive if it is sustained for years on end. 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.
Recent, EPS has fallen by 69.8%, so this could continue over the next year. While this means that the company will be unprofitable, we generally believe cash flows are more important, and the current cash payout ratio is quite healthy, which gives us comfort.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was UK£0.021 in 2012, and the most recent fiscal year payment was UK£0.17. This means that it has been growing its distributions at 23% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 70% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.
We'd also point out that Next Fifteen Communications Group has issued stock equal to 32% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
The Dividend Could Prove To Be Unreliable
Overall, we always like to see the dividend being raised, but we don't think Next Fifteen Communications Group will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Next Fifteen Communications Group is a great stock to add to your portfolio if income is your focus.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 3 warning signs for Next Fifteen Communications Group that you should be aware of before investing. Is Next Fifteen Communications Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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