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

Port of Tauranga Limited's (NZSE:POT) dividend will be increasing from last year's payment of the same period to NZ$0.08 on 24th of March. Although the dividend is now higher, the yield is only 2.4%, which is below the industry average.

Check out our latest analysis for Port of Tauranga

Port of Tauranga's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Port of Tauranga was paying out quite a large proportion of both earnings and cash flow, with the dividend being 101% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Over the next year, EPS is forecast to expand by 22.3%. If the dividend continues along recent trends, we estimate the payout ratio could reach 87%, which is on the higher side, but certainly still feasible.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the annual payment back then was NZ$0.078, compared to the most recent full-year payment of NZ$0.147. This implies that the company grew its distributions at a yearly rate of about 6.5% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

We Could See Port of Tauranga's Dividend Growing

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Port of Tauranga has seen EPS rising for the last five years, at 5.5% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

Port of Tauranga's Dividend Doesn't Look Sustainable

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. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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. Is Port of Tauranga not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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