Manawa Energy's (NZSE:MNW) Upcoming Dividend Will Be Larger Than Last Year's

Manawa Energy Limited (NZSE:MNW) will increase its dividend from last year's comparable payment on the 14th of June to NZ$0.1294. This takes the annual payment to 3.8% of the current stock price, which is about average for the industry.

Check out our latest analysis for Manawa Energy

Manawa Energy's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Manawa Energy's dividend was only 46% of earnings, however it was paying out 99% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

The next 12 months could see EPS growing very rapidly. Assuming the dividend continues along the path it has been on, the payout ratio could get to 79% which is certainly still sustainable.

Manawa Energy's Dividend Has Lacked Consistency

Looking back, Manawa Energy's dividend hasn't been particularly consistent. This suggests that the dividend might not be the most reliable. The annual payment during the last 8 years was NZ$0.32 in 2016, and the most recent fiscal year payment was NZ$0.16. This works out to be a decline of approximately 8.3% 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.

The Dividend Has Limited Growth Potential

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Manawa Energy's EPS has fallen by approximately 24% per year during 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. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Manawa Energy's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Manawa Energy will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. As an example, we've identified 2 warning signs for Manawa Energy that you should be aware of before investing. Is Manawa Energy not quite the opportunity you were looking for? Why not check out our selection of top 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.