The board of South Port New Zealand Limited (NZSE:SPN) has announced that it will pay a dividend on the 8th of November, with investors receiving NZ$0.2294 per share. The dividend yield will be 4.6% based on this payment which is still above the industry average.
Check out our latest analysis for South Port New Zealand
South Port New Zealand Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, South Port New Zealand's dividend was only 53% of earnings, however it was paying out 283% of free cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, EPS could fall by 5.5% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 121%, which could put the dividend under pressure if earnings don't start to improve.
South Port New Zealand Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was NZ$0.22, compared to the most recent full-year payment of NZ$0.27. This implies that the company grew its distributions at a yearly rate of about 2.1% over that duration. 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.
Dividend Growth May Be Hard To Come By
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Over the past five years, it looks as though South Port New Zealand's EPS has declined at around 5.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 4 warning signs for South Port New Zealand that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection 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.
About NZSE:SPN
Slight with mediocre balance sheet.
