Port of Tauranga's (NZSE:POT) Upcoming Dividend Will Be Larger Than Last Year's

The board of Port of Tauranga Limited (NZSE:POT) has announced that it will be paying its dividend of NZ$0.1035 on the 6th of October, an increased payment from last year's comparable dividend. This will take the annual payment to 2.6% of the stock price, which is above what most companies in the industry pay.

See 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 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 24.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 90%, 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. 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 works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year 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

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. 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. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.

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 payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 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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