Nexstar Media's Cash Flow Increases The Safety Of Its Dividend Yield
With so many cross currents in the stock market, what can you trust? Who can you trust?
The short answer is that you can trust high-quality fundamentals to guide your investment process through good markets and bad. Look no farther than Warren Buffet – the greatest investor of all time. He's not a MOMO, FOMO or crypto bro. Not at all, he's always been about deep fundamental analysis, reading annual reports and doing real diligence.
I take the Warren Buffet approach one step further by adding technology. Specifically, the Robo-Analyst AI is proven to deliver superior fundamental research and stock ratings. This technology gives me an edge and is a big part of why my stock picks and Bloomberg Indices beat the market.
I use the same technology to build all of my model portfolios, including the Safest Dividend Yields Model Portfolio. This portfolio only includes stocks that earn an attractive or very attractive rating, have positive free cash flow (FCF) and economic earnings, and offer a dividend yield greater than 3%.
Dividend paying stocks can provide a safe-haven, but only if the underlying companies generate enough cash to cover the dividends. This portfolio only holds stocks for companies that generate enough FCF to support the dividend. I think the stocks in this portfolio can outperform in the current market and beyond.
This stock pick provides a summary of how I pick stocks for the Safest Dividend Yields Model Portfolio.
Nexstar Media Group Inc (NXST) is the featured stock in March's Safest Dividend Yields Model Portfolio.
Nexstar Media Group has grown revenue and net operating profit after tax (NOPAT) by 12% and 17% compounded annually, respectively, since 2019. The company's NOPAT margin improved from 15% in 2019 to 18% in 2024, while invested capital turns rose from 0.4 to 0.5 over the same time. Rising NOPAT margins and invested capital turns drive the company's return on invested capital (ROIC) from 6% in 2019 to 9% in 2024.
Figure 1: Nexstar Media Group's Revenue & NOPAT Since 2019
NXST Revenue and NOPAT - 2019-2024
Nexstar Media Group has increased its regular dividend from $0.56/share in 1Q20 to $1.86/share in 1Q25. The current quarterly dividend, when annualized provides a 4.1% dividend yield.
The company's free cash flow (FCF) easily exceeds its regular dividend payments. From 2020 through 2024, the company generated $6.3 billion (46% of current enterprise value) in FCF while paying $771 million in regular dividends. See Figure 2.
Figure 2: Nexstar Media Group's FCF Vs. Regular Dividends Since 2020
NXST FCF and Dividends: 2020-2024
As Figure 2 shows, this company's dividends are backed by a history of reliable cash flows. Dividends from companies with low or negative FCF are less dependable since the company might not be able to sustain paying dividends.
At its current price of $183/share, NXST has a price-to-economic book value (PEBV) ratio of 0.8. This ratio means the market expects the company's NOPAT to permanently fall 20% from 2024 levels. This expectation seems overly pessimistic given that the company has grown NOPAT 17% compounded annually over the last five years and 25% compounded annually over the past decade.
Even if the company's:
the stock would be worth $228/share today – a 25% upside. In this scenario, the company's NOPAT would grow just 2% compounded annually through 2034.
Should the company's NOPAT grow more in line with historical growth rates, the stock has even more upside.
Below are specifics on the adjustments I make based on Robo-Analyst findings in this featured stock's 10-K:
Income Statement: I made over $700 million in adjustments with a net effect of removing just over $250 million in non-operating expenses.
Balance Sheet: I made over $1 billion in adjustments to calculate invested capital with a net increase of just under $1 billion. The most notable adjustment was for asset write downs.
Valuation: I made over $8 billion in adjustments to shareholder value, with a net decrease of around $8 billion. Other than total debt, the most notable adjustment to shareholder value was for deferred tax liability.
Disclosure: David Trainer, Kyle Guske II, and Hakan Salt receive no compensation to write about any specific stock, style, or theme.
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