Port of Tauranga's (NZSE:POT) Shareholders Will Receive A Bigger Dividend Than Last Year

Port of Tauranga Limited (NZSE:POT) will increase its dividend on the 1st of October to NZ$0.088. Even though the dividend went up, the yield is still quite low at only 2.2%.

Check out our latest analysis for Port of Tauranga

Port of Tauranga Is Paying Out More Than It Is Earning

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. At the time of the last dividend payment, Port of Tauranga was paying out a very large proportion of what it was earning and 148% 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.

Earnings per share is forecast to rise by 10.6% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 110%, which probably can't continue putting some pressure on the balance sheet.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the dividend has gone from NZ$0.06 to NZ$0.14. This means that it has been growing its distributions at 8.4% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.2% per annum over the last five years, which admittedly is a bit slow. Earnings are not growing quickly at all, and the company is paying out most of its profit as dividends. 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.

Port of Tauranga's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Port of Tauranga that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list 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.
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