Genesis Energy's (NZSE:GNE) Dividend Will Be Increased To NZ$0.1016

Genesis Energy Limited's (NZSE:GNE) dividend will be increasing from last year's payment of the same period to NZ$0.1016 on 7th of October. This will take the dividend yield to an attractive 6.0%, providing a nice boost to shareholder returns.

View 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. 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 can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, earnings per share is forecast to fall by 47.0% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 181%, which could put the dividend under pressure if earnings don't start to improve.

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 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. 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.

Genesis Energy's Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Genesis Energy has impressed us by growing EPS at 12% per year over the past five years. 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.

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. 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 don't think Genesis Energy is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 3 warning signs for Genesis Energy (2 don't sit too well with us!) that you should be aware of before investing. 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.