Livestock Improvement (NZSE:LIC) Is Reducing Its Dividend To NZ$0.13

The board of Livestock Improvement Corporation Limited (NZSE:LIC) has announced that the dividend on 20th of August will be reduced by 1.9% to NZ$0.13. This means the annual payment is 9.3% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Livestock Improvement

Livestock Improvement's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 80% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

If the trend of the last few years continues, EPS will grow by 2.6% over the next 12 months. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 54% which brings it into quite a comfortable range.

historic-dividend

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was NZ$0.059, compared to the most recent full-year payment of NZ$0.13. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Livestock Improvement might have put its house in order since then, but we remain cautious.

Livestock Improvement May Find It Hard To Grow The Dividend

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. However, Livestock Improvement has only grown its earnings per share at 2.6% per annum over the past five years. Livestock Improvement's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. That's fine as far as it goes, but we're less enthusiastic as this often signals that the dividend is likely to grow slower in the future.

Our Thoughts On Livestock Improvement's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Livestock Improvement that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

This article by Simply Wall St is general in nature. 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.