Contact Energy (NZSE:CEN) Has Announced A Dividend Of NZ$0.1847

Contact Energy Limited (NZSE:CEN) will pay a dividend of NZ$0.1847 on the 18th of March. This takes the annual payment to 4.0% of the current stock price, which is about average for the industry.

See our latest analysis for Contact Energy

Contact Energy's Projections Indicate Future Payments May Be Unsustainable

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, the company's dividend was much higher than its earnings. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Over the next year, EPS is forecast to expand by 34.6%. If the dividend continues on its recent course, the payout ratio in 12 months could be 125%, which is a bit high and could start applying pressure to the balance sheet.

Contact Energy Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was NZ$0.26 in 2015, and the most recent fiscal year payment was NZ$0.37. This means that it has been growing its distributions at 3.6% 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.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Contact Energy has seen EPS rising for the last five years, at 9.1% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Contact Energy's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Contact Energy is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Contact Energy you should be aware of, and 1 of them makes us a bit uncomfortable. 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.