Genesis Energy's (NZSE:GNE) Dividend Will Be Increased To NZ$0.10

Genesis Energy Limited (NZSE:GNE) will increase its dividend on the 8th of October to NZ$0.10. This makes the dividend yield 5.9%, which is above the industry average.

See our latest analysis for Genesis Energy

Genesis Energy Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, the company's dividend was higher than its profits, and made up 76% of cash flows. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Earnings per share is forecast to rise exponentially over the next year. Assuming the dividend continues along recent trends, we could see the payout ratio reach 186%, which is on the unsustainable side.

Genesis Energy Doesn't Have A Long Payment History

It is great to see that Genesis Energy has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2014, the first annual payment was NZ$0.13, compared to the most recent full-year payment of NZ$0.17. This means that it has been growing its distributions at 4.0% per annum 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.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Genesis Energy's earnings per share has shrunk at 29% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Genesis Energy is a great stock to add to your portfolio if income is your focus.

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 identified 5 warning signs for Genesis Energy (1 makes us a bit uncomfortable!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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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.
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