Trustpower (NZSE:TPW) Will Pay A Larger Dividend Than Last Year At NZ$0.22

By
Simply Wall St
Published
June 02, 2021
NZSE:MNW
Source: Shutterstock

Trustpower Limited (NZSE:TPW) will increase its dividend on the 18th of June to NZ$0.22. This will take the dividend yield from 4.1% to 4.8%, providing a nice boost to shareholder returns.

View our latest analysis for Trustpower

Trustpower Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, the company was paying out 312% of what it was earning and 90% of cash flows. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Earnings per share is forecast to rise by 170.0% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 137% over the next year.

historic-dividend
NZSE:TPW Historic Dividend June 2nd 2021

Trustpower's Dividend Has Lacked Consistency

It's comforting to see that Trustpower has been paying a dividend for a number of years now, however it has been cut at least once in that time. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2016, the first annual payment was NZ$0.32, compared to the most recent full-year payment of NZ$0.35. This means that it has been growing its distributions at 2.1% per annum over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

Dividend Growth Potential Is Shaky

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Trustpower's EPS has fallen by approximately 13% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Trustpower's Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Trustpower's payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Trustpower has 3 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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