Nexstar Media Group’s $1.86 Dividend Boost: A Strategic Move for Shareholder Value?
118min read Nexstar Media Group (NASDAQ: NXST) has announced a quarterly cash dividend of $1.86 per share, marking a 10% increase from its previous payout of $1.69. This move underscores the company’s commitment to returning capital to shareholders while maintaining financial discipline. The dividend, which will be distributed to shareholders on February 26, 2025, highlights Nexstar’s robust cash flow and its 12-year streak of consecutive dividend hikes, a rarity in the media sector.
Dividend Details and Timeline
The key dates for the dividend are as follows:
- Ex-Dividend Date: February 12, 2025 (shares purchased on or after this date will not qualify for the dividend).
- Record Date: February 12, 2025 (shareholders must own the stock by this date to receive the payout).
- Payout Date: February 26, 2025.
This dividend brings the annualized dividend to $7.44 per share, yielding approximately 4.73% based on Nexstar’s stock price at the time of the announcement. The increase aligns with the company’s strategy of balancing shareholder returns with growth investments.
Sustainability of the Payout
A critical question is whether this dividend increase is sustainable. According to the research, Nexstar’s dividend payout ratio—the proportion of earnings paid out as dividends—is just 34.56% of trailing 12-month net income, a figure well below industry norms. For context, the broader media sector averages a payout ratio of 50-60%, suggesting Nexstar retains ample earnings for reinvestment. Additionally, its payout ratio as a percentage of free cash flow is 19.69%, further signaling financial flexibility.
The company’s strong cash flow generation, driven by its dominant position in local TV markets and digital advertising, supports this sustainability. Nexstar operates 189 television stations across the U.S., leveraging scale to negotiate favorable terms with advertisers and content providers.
Performance in Context
Nexstar’s dividend growth has been impressive. Over the past three years, its dividend has grown at a 34.15% annualized rate, far outpacing peers like Sinclair Broadcast Group (SBGI), which has seen dividend growth of just 2.5% annually over the same period.
This outperformance is partly due to Nexstar’s focus on cost discipline and debt reduction. As of late 2024, its net debt-to-EBITDA ratio stood at 2.8x, a healthy level that provides room for further leverage if needed.
Risks and Considerations
While the dividend appears sustainable, challenges persist. The media sector faces headwinds from ad revenue declines in traditional TV and the shift to streaming platforms. Nexstar’s reliance on local advertising could make it vulnerable to economic downturns. Additionally, the company’s payout ratio, though low today, could rise if earnings stagnate.
Investment Thesis
For income investors, Nexstar’s 4.73% yield and dividend growth trajectory make it an attractive option, particularly in a low-interest-rate environment. The stock’s valuation—trading at 7.2x forward EBITDA—is also reasonable relative to its peers.
Conclusion
Nexstar Media Group’s $1.86 dividend boost is a bold move that reinforces its status as a dividend stalwart in an uncertain media landscape. With a payout ratio well within sustainable limits and a 12-year track record of growth, shareholders can be confident in the company’s ability to sustain its dividend. However, investors must monitor its adaptation to industry shifts, such as the transition to digital advertising, which could impact future earnings.
The data paints a clear picture: Nexstar’s dividend policy is underpinned by strong fundamentals, making it a compelling choice for income-focused investors seeking stability and growth. As the company continues to prioritize shareholder returns, its stock could remain a standout performer in an otherwise challenging sector.
