Livestock Improvement (NZSE:LIC) Has Announced That Its Dividend Will Be Reduced To NZ$0.13

Livestock Improvement Corporation Limited (NZSE:LIC) is reducing its dividend to NZ$0.13 on the 20th of Augustwhich is 1.9% less than last year. The yield is still above the industry average at 9.3%.

See our latest analysis for Livestock Improvement

Livestock Improvement's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Livestock Improvement was paying out 80% of earnings, but a comparatively small 74% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

If the trend of the last few years continues, EPS will grow by 2.6% over the next 12 months. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 54% which brings it into quite a comfortable range.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The first annual payment during the last 10 years was NZ$0.059 in 2011, and the most recent fiscal year payment was NZ$0.13. This means that it has been growing its distributions at 7.9% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Livestock Improvement May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Earnings per share has been crawling upwards at 2.6% per year. Livestock Improvement's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

Our Thoughts On Livestock Improvement's Dividend

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Livestock Improvement that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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