Genesis Energy (NZSE:GNE) Is Increasing Its Dividend To NZ$0.1016

The board of Genesis Energy Limited (NZSE:GNE) has announced that it will be paying its dividend of NZ$0.1016 on the 7th of October, an increased payment from last year's comparable dividend. This will take the annual payment to 5.9% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Genesis Energy

Genesis Energy 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. Before making this announcement, Genesis Energy was paying out quite a large proportion of both earnings and cash flow, with the dividend being 106% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to fall by 44.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 172%, which could put the dividend in jeopardy if the company's earnings don't improve.

Genesis Energy Doesn't Have A Long Payment History

Genesis Energy's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2014, the dividend has gone from NZ$0.132 total annually to NZ$0.176. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Genesis Energy has seen EPS rising for the last five years, at 12% per annum. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

Genesis Energy's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Genesis Energy (of which 2 are a bit concerning!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.