Livestock Improvement (NZSE:LIC) Is Reducing Its Dividend To NZ$0.0584

Livestock Improvement Corporation Limited (NZSE:LIC) is reducing its dividend from last year's comparable payment to NZ$0.0584 on the 16th of August. Based on this payment, the dividend yield will be 5.0%, which is lower than the average for the industry.

Check out our latest analysis for Livestock Improvement

Livestock Improvement Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Livestock Improvement's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to fall by 19.4% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 371%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was NZ$0.137, compared to the most recent full-year payment of NZ$0.0584. This works out to be a decline of approximately 8.2% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Earnings per share has been sinking by 19% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Livestock Improvement's Dividend Doesn't Look Sustainable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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 be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Livestock Improvement has 6 warning signs (and 2 which don't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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