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

Genesis Energy Limited's (NZSE:GNE) dividend will be increasing from last year's payment of the same period to NZ$0.0844 on 10th of October. This will take the annual payment to 6.0% of the stock price, which is above what most companies in the industry pay.

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Genesis Energy's Projections Indicate Future Payments May Be Unsustainable

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Genesis Energy was paying out 92% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Looking forward, earnings per share is forecast to fall by 12.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 126%, which could put the dividend under pressure if earnings don't start to improve.

See our latest analysis for Genesis Energy

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the annual payment back then was NZ$0.16, compared to the most recent full-year payment of NZ$0.143. This works out to be a decline of approximately 1.1% per year over that time. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Genesis Energy Might Find It Hard To Grow Its Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Genesis Energy has been growing its earnings per share at 28% a year over the past five years. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Genesis Energy hasn't been doing.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. Strong earnings growth means Genesis Energy has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Genesis Energy you should be aware of, and 1 of them is concerning. 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.