Nexstar Media Group, Inc. (NASDAQ:NXST) stock is about to trade ex-dividend in 4 days time. If you purchase the stock on or after the 8th of August, you won't be eligible to receive this dividend, when it is paid on the 23rd of August.
Nexstar Media Group's next dividend payment will be US$0.45 per share, and in the last 12 months, the company paid a total of US$1.80 per share. Last year's total dividend payments show that Nexstar Media Group has a trailing yield of 1.8% on the current share price of $98.77. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. Nexstar Media Group paid out just 18% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether Nexstar Media Group generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Nexstar Media Group's earnings have been skyrocketing, up 48% per annum for the past five years. Nexstar Media Group looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 7 years ago, Nexstar Media Group has lifted its dividend by approximately 21% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Is Nexstar Media Group an attractive dividend stock, or better left on the shelf? We love that Nexstar Media Group is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Nexstar Media Group looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Ever wonder what the future holds for Nexstar Media Group? See what the eight analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.