Yahoo Finance Mercury NZ (NZSE:MCY) Is Paying Out A Larger Dividend Than Last Year
Mercury NZ Limited (NZSE:MCY) will increase its dividend on the 1st of April to NZ$0.094. Based on the announced payment, the dividend yield for the company will be 3.9%, which is fairly typical for the industry.
View our latest analysis for Mercury NZ
Mercury NZ's Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. The last payment was quite easily covered by earnings, but it made up 198% of 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.
Over the next year, EPS is forecast to fall by 62.5%. Assuming the dividend continues along recent trends, we believe the payout ratio could be , which we are pretty comfortable with and we think is feasible on an earnings basis.
Mercury NZ's Dividend Has Lacked Consistency
It's comforting to see that Mercury NZ has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. The first annual payment during the last 8 years was NZ$0.13 in 2014, and the most recent fiscal year payment was NZ$0.17. This works out to be a compound annual growth rate (CAGR) of approximately 3.4% a year 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
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings per share has been sinking by 100% over the last 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.
The Dividend Could Prove To Be Unreliable
In summary, while it's always good to see the dividend being raised, we don't think Mercury NZ's payments are rock solid. While Mercury NZ is earning enough to cover the payments, the cash flows are lacking. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Mercury NZ you should be aware of, and 1 of them is significant. Is Mercury NZ 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.
