NZX Limited (NZSE:NZX) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 3rd of September, you won’t be eligible to receive this dividend, when it is paid on the 18th of September.
NZX’s upcoming dividend is NZ$0.035 a share, following on from the last 12 months, when the company distributed a total of NZ$0.061 per share to shareholders. Based on the last year’s worth of payments, NZX has a trailing yield of 3.7% on the current stock price of NZ$1.64. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Last year, NZX paid out 98% of its income as dividends, which is above a level that we’re comfortable with, especially if the company needs to reinvest in its business.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re encouraged by the steady growth at NZX, with earnings per share up 3.9% on average over the last five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. NZX has delivered an average of 8.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Should investors buy NZX for the upcoming dividend? While we like that its earnings are growing somewhat, we’re not enamored that it’s paying out 98% of last year’s earnings. This is not an overtly appealing combination of characteristics, and we’re just not that interested in this company’s dividend.
So if you’re still interested in NZX despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that NZX is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious…
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.
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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. 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.
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