New Zealand markets closed
  • NZX 50

    11,065.15
    -37.69 (-0.34%)
     
  • NZD/USD

    0.6538
    +0.0055 (+0.85%)
     
  • NZD/EUR

    0.6084
    +0.0048 (+0.80%)
     
  • ALL ORDS

    7,413.10
    +73.80 (+1.01%)
     
  • ASX 200

    7,182.70
    +76.80 (+1.08%)
     
  • OIL

    115.07
    +0.98 (+0.86%)
     
  • GOLD

    1,850.60
    +3.00 (+0.16%)
     
  • NASDAQ

    12,681.42
    +404.63 (+3.30%)
     
  • FTSE

    7,585.46
    +20.54 (+0.27%)
     
  • Dow Jones

    33,212.96
    +575.77 (+1.76%)
     
  • DAX

    14,462.19
    +230.90 (+1.62%)
     
  • Hang Seng

    20,697.36
    +581.16 (+2.89%)
     
  • NIKKEI 225

    26,781.68
    +176.84 (+0.66%)
     
  • NZD/JPY

    83.0810
    +0.7640 (+0.93%)
     

Genesis Energy's (NZSE:GNE) Upcoming Dividend Will Be Larger Than Last Year's

·3-min read

Genesis Energy Limited (NZSE:GNE) will increase its dividend on the 8th of October to NZ$0.10. This will take the annual payment from 5.2% to 5.9% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Genesis Energy

Genesis Energy Doesn't Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, the company's dividend was higher than its profits, and made up 76% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Over the next year, EPS is forecast to grow rapidly. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 186%.

historic-dividend
historic-dividend

Genesis Energy Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 7 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from NZ$0.13 in 2014 to the most recent annual payment of NZ$0.17. This works out to be a compound annual growth rate (CAGR) of approximately 4.0% a year 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

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Genesis Energy's earnings per share has shrunk at 29% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. 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 payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 can't be ignored!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting