Port of Tauranga (NZSE:POT) Has Announced That It Will Be Increasing Its Dividend To NZ$0.16

Port of Tauranga Limited (NZSE:POT) will increase its dividend on the 25th of March to NZ$0.16. This takes the dividend yield from 2.2% to 4.0%, which shareholders will be pleased with.

See our latest analysis for Port of Tauranga

Port of Tauranga Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Port of Tauranga's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 125% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Earnings per share is forecast to rise by 5.3% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 160% over the next year.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. Since 2012, the dividend has gone from NZ$0.062 to NZ$0.14. This implies that the company grew its distributions at a yearly rate of about 8.1% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Port of Tauranga might have put its house in order since then, but we remain cautious.

Port of Tauranga Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Port of Tauranga has been growing its earnings per share at 5.5% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Port of Tauranga's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Port of Tauranga will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Earnings growth generally bodes well for the future value of company dividend payments. See if the 5 Port of Tauranga analysts we track are forecasting continued growth with our free report on analyst estimates for the company. 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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