nib holdings limited (ASX:NHF) stock is about to trade ex-dividend in four days. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, nib holdings investors that purchase the stock on or after the 3rd of September will not receive the dividend, which will be paid on the 7th of October.
The company's upcoming dividend is AU$0.21 a share, following on from the last 12 months, when the company distributed a total of AU$0.29 per share to shareholders. Based on the last year's worth of payments, nib holdings has a trailing yield of 4.3% on the current stock price of AU$6.74. If you buy this business for its dividend, you should have an idea of whether nib holdings's dividend is reliable and sustainable. As a result, readers should always check whether nib holdings has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 76% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
See our latest analysis for nib holdings
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That explains why we're not overly excited about nib holdings's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. nib holdings has delivered an average of 7.0% per year annual increase in its dividend, based on the past 10 years of dividend payments.
To Sum It Up
Has nib holdings got what it takes to maintain its dividend payments? nib holdings has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
If you're not too concerned about nib holdings's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example, nib holdings has 2 warning signs (and 1 which is significant) we think you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.