Yahoo Finance It Might Be Better To Avoid The New Zealand Refining Company Limited's (NZSE:NZR) Upcoming 1.1% Dividend
The New Zealand Refining Company Limited (NZSE:NZR) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 11th of September will not receive the dividend, which will be paid on the 19th of September.
New Zealand Refining's upcoming dividend is NZ$0.024 a share, following on from the last 12 months, when the company distributed a total of NZ$0.075 per share to shareholders. Based on the last year's worth of payments, New Zealand Refining has a trailing yield of 3.6% on the current stock price of NZ$2.11. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for New Zealand Refining
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. New Zealand Refining is paying out an acceptable 70% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year it paid out 67% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that New Zealand Refining's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're not enthused to see that New Zealand Refining's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. New Zealand Refining's dividend payments per share have declined at 15% per year on average over the past 10 years, which is uninspiring.
The Bottom Line
Is New Zealand Refining an attractive dividend stock, or better left on the shelf? New Zealand Refining has been unable to generate earnings growth, but at least its dividend looks sustainable, with its profit and cashflow payout ratios within reasonable limits. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
Ever wonder what the future holds for New Zealand Refining? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
