Napier Port Holdings (NZSE:NPH) Is Paying Out A Dividend Of NZ$0.0553

The board of Napier Port Holdings Limited (NZSE:NPH) has announced that it will pay a dividend of NZ$0.0553 per share on the 15th of December. This means that the annual payment will be 3.4% of the current stock price, which is in line with the average for the industry.

Check out the opportunities and risks within the NZ Infrastructure industry.

Napier Port Holdings' Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, Napier Port Holdings' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. We think that this practice can make the dividend quite risky in the future.

Over the next year, EPS is forecast to expand by 43.5%. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

Napier Port Holdings Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of NZ$0.025 in 2019 to the most recent total annual payment of NZ$0.094. This works out to be a compound annual growth rate (CAGR) of approximately 55% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Napier Port Holdings' EPS has fallen by approximately 33% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Napier Port Holdings' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Napier Port Holdings' payments, as there could be some issues with sustaining them into the future. While Napier Port Holdings is earning enough to cover the payments, the cash flows are lacking. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Napier Port Holdings that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.