NZX (NZSE:NZX) Has Announced A Dividend Of NZ$0.0365

NZX Limited's (NZSE:NZX) investors are due to receive a payment of NZ$0.0365 per share on 2nd of April. Based on this payment, the dividend yield on the company's stock will be 3.8%, which is an attractive boost to shareholder returns.

View our latest analysis for NZX

NZX's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, NZX's was paying out quite a large proportion of earnings and 87% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

EPS is set to grow by 19.4% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

NZX Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from NZ$0.06 total annually to NZ$0.061. Dividend payments have grown at less than 1% a year over this period. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

We Could See NZX's Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that NZX has been growing its earnings per share at 7.9% a year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about NZX's payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for NZX that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated 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.