Spark New Zealand (NZSE:SPK) Is Paying Out A Dividend Of NZ$0.1647

The board of Spark New Zealand Limited (NZSE:SPK) has announced that it will pay a dividend on the 4th of October, with investors receiving NZ$0.1647 per share. The dividend yield will be 7.3% based on this payment which is still above the industry average.

Check out our latest analysis for Spark New Zealand

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

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 159% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 37.2%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 141%, which probably can't continue without putting some pressure on the balance sheet.

Spark New Zealand 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. The annual payment during the last 10 years was NZ$0.18 in 2014, and the most recent fiscal year payment was NZ$0.28. This means that it has been growing its distributions at 4.5% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Spark New Zealand May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. It's not great to see that Spark New Zealand's earnings per share has fallen at approximately 4.8% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Spark New Zealand's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Spark New Zealand (1 is concerning!) that you should be aware of before investing. 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.