Yahoo Finance Mercury NZ's (NZSE:MCY) Upcoming Dividend Will Be Larger Than Last Year's
The board of Mercury NZ Limited (NZSE:MCY) has announced that it will be increasing its dividend on the 30th of September to NZ$0.12. This makes the dividend yield about the same as the industry average at 2.9%.
Check out our latest analysis for Mercury NZ
Mercury NZ Is Paying Out More Than It Is Earning
Solid dividend yields are great, but they only really help us if the payment is sustainable. Prior to this announcement, Mercury NZ's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 1,447% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.
Over the next year, EPS is forecast to fall by 38.9%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 180%, which could put the dividend under pressure if earnings don't start to improve.
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. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. The first annual payment during the last 8 years was NZ$0.13 in 2013, and the most recent fiscal year payment was NZ$0.17. This means that it has been growing its distributions at 3.4% per annum over that time. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.
Dividend Growth Could Be Constrained
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Mercury NZ has impressed us by growing EPS at 18% per year over the past five years. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.
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. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Mercury NZ that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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.
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