Port of Tauranga (NZSE:POT) Has Announced That It Will Be Increasing Its Dividend To NZ$0.1035

Port of Tauranga Limited (NZSE:POT) will increase its dividend from last year's comparable payment on the 6th of October to NZ$0.1035. This makes the dividend yield 2.8%, which is above the industry average.

View our latest analysis for Port of Tauranga

Port of Tauranga's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Port of Tauranga was paying out quite a large proportion of both earnings and cash flow, with the dividend being 110% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 24.0%. If recent patterns in the dividend continues, the payout ratio in 12 months could be 90% which is a bit high but can definitely be sustainable.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of NZ$0.078 in 2013 to the most recent total annual payment of NZ$0.156. This means that it has been growing its distributions at 7.2% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings per share has been crawling upwards at 4.2% per year. Slow growth and a high payout ratio could mean that Port of Tauranga has maxed out the amount that it has been able to pay to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Port of Tauranga's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. Earnings growth generally bodes well for the future value of company dividend payments. See if the 4 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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