Why You Might Be Interested In NIC Inc. (NASDAQ:EGOV) For Its Upcoming Dividend

Simply Wall St

Readers hoping to buy NIC Inc. (NASDAQ:EGOV) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 3rd of March to receive the dividend, which will be paid on the 18th of March.

NIC's next dividend payment will be US$0.09 per share. Last year, in total, the company distributed US$0.36 to shareholders. Last year's total dividend payments show that NIC has a trailing yield of 1.9% on the current share price of $19.39. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether NIC has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for NIC

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. NIC paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether NIC generated enough free cash flow to afford its dividend. Fortunately, it paid out only 39% 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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:EGOV Historical Dividend Yield, February 27th 2020

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. With that in mind, we're encouraged by the steady growth at NIC, with earnings per share up 4.7% on average over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. NIC has delivered 1.8% dividend growth per year on average over the past ten years.

Final Takeaway

Is NIC an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and NIC is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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.

Curious what other investors think of NIC? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.