Spark New Zealand (NZSE:SPK) Is Increasing Its Dividend To NZ$0.1588

Spark New Zealand Limited's (NZSE:SPK) dividend will be increasing from last year's payment of the same period to NZ$0.1588 on 6th of October. This makes the dividend yield about the same as the industry average at 5.4%.

See our latest analysis for Spark New Zealand

Spark New Zealand Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 161% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 55.8% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 121%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was NZ$0.20, compared to the most recent full-year payment of NZ$0.27. This works out to be a compound annual growth rate (CAGR) of approximately 3.0% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. We are encouraged to see that Spark New Zealand has grown earnings per share at 25% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Spark New Zealand could prove to be a strong dividend payer.

Our Thoughts On Spark New Zealand's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Spark New Zealand's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Spark New Zealand (of which 2 don't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.