Is Meridian Energy Limited (NZE:MEL) A Strong Dividend Stock?

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Meridian Energy Limited (NZSE:MEL) has returned to shareholders over the past 3 years, an average dividend yield of 5.00% annually. Does Meridian Energy tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Meridian Energy

5 questions to ask before buying a dividend stock

When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:

• Does it pay an annual yield higher than 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has it increased its dividend per share amount over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Will the company be able to keep paying dividend based on the future earnings growth?

NZSE:MEL Historical Dividend Yield Jun 5th 18

How does Meridian Energy fare?

The company currently pays out 199.38% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is not sufficiently covered by its earnings. In the near future, analysts are predicting a lower payout ratio of 169.07%, leading to a dividend yield of around 6.06%. However, EPS should increase to NZ$0.09, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view Meridian Energy as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. In terms of its peers, Meridian Energy has a yield of 4.59%, which is high for Renewable Energy stocks but still below the market’s top dividend payers.

Next Steps:

After digging a little deeper into Meridian Energy’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three fundamental aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for MEL’s future growth? Take a look at our free research report of analyst consensus for MEL’s outlook.

2. Valuation: What is MEL worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MEL is currently mispriced by the market.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.