Spark New Zealand (NZSE:SPK) Is Paying Out A Dividend Of NZ$0.1471

Spark New Zealand Limited (NZSE:SPK) has announced that it will pay a dividend of NZ$0.1471 per share on the 7th of October. This means the dividend yield will be fairly typical at 5.1%.

View our latest analysis for Spark New Zealand

Spark New Zealand Doesn't Earn Enough To Cover Its Payments

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 27.9% over the next year. If the dividend continues on its recent course, the payout ratio in 12 months could be 108%, which is a bit high and could start applying pressure to the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the annual payment back then was NZ$0.18, compared to the most recent full-year payment of NZ$0.27. This implies that the company grew its distributions at a yearly rate of about 4.1% over that duration. 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.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Unfortunately, Spark New Zealand's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Spark New Zealand's Dividend Doesn't Look Great

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, the dividend is not reliable enough to make this 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Spark New Zealand has 2 warning signs (and 1 which doesn'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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