Investors who want to cash in on Meridian Energy Limited's (NZSE:MEL) upcoming dividend of NZ$0.09 per share have only 3 days left to buy the shares before its ex-dividend date, 28 March 2018, in time for dividends payable on the 17 April 2018. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Meridian Energy's latest financial data to analyse its dividend characteristics. See our latest analysis for Meridian Energy
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has the amount of dividend per share grown over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How does Meridian Energy fare?The current trailing twelve-month payout ratio for MEL is 199.38%, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a lower payout ratio of 165.32%, leading to a dividend yield of 6.38%. However, EPS should increase to NZ$0.09, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. Unfortunately, it is really too early to view Meridian Energy as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Meridian Energy generates a yield of 4.81%, which is high for Renewable Energy stocks but still below the market's top dividend payers.
After digging a little deeper into Meridian Energy's yield, it's easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I've put together three essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for MEL’s future growth? Take a look at our free research report of analyst consensus for MEL’s outlook.
- Valuation: What is MEL worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MEL is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.