Genesis Energy (NZSE:GNE) Is Paying Out A Larger Dividend Than Last Year

Genesis Energy Limited (NZSE:GNE) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of October to NZ$0.1016. This will take the dividend yield to an attractive 5.9%, providing a nice boost to shareholder returns.

Check out our latest analysis for Genesis Energy

Genesis Energy Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Genesis Energy's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 106% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to fall by 47.1% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 182%, which is definitely a bit high to be sustainable going forward.

Genesis Energy Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 8 years was NZ$0.132 in 2014, and the most recent fiscal year payment was NZ$0.176. This implies that the company grew its distributions at a yearly rate of about 3.7% over that duration. Genesis Energy hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Dividend Growth Could Be Constrained

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Genesis Energy has seen EPS rising for the last five years, at 12% per annum. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited 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 Genesis Energy's payments are rock solid. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Genesis Energy has 3 warning signs (and 2 which make us uncomfortable) we think 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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