South Port New Zealand's (NZSE:SPN) Dividend Will Be Increased To NZ$0.23

The board of South Port New Zealand Limited (NZSE:SPN) has announced that it will be increasing its dividend on the 9th of November to NZ$0.23. This will take the dividend yield from 3.0% to 3.6%, providing a nice boost to shareholder returns.

See our latest analysis for South Port New Zealand

South Port New Zealand's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment was quite easily covered by earnings, but it made up 150% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Earnings per share could rise by 4.2% over the next year if things go the same way as they have for the last few years. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 76%, which is on the higher side, but certainly still feasible.

South Port New Zealand Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from NZ$0.20 in 2011 to the most recent annual payment of NZ$0.27. This means that it has been growing its distributions at 3.0% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. However, South Port New Zealand has only grown its earnings per share at 4.2% per annum over the past five years. The company has been growing at a pretty soft 4.2% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Our Thoughts On South Port New Zealand's Dividend

Overall, we always like to see the dividend being raised, but we don't think South Port New Zealand will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in South Port New Zealand stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

If you’re looking to trade a wide range of investments, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.