Yahoo Finance Port of Tauranga's (NZSE:POT) Shareholders Will Receive A Bigger Dividend Than Last Year
Port of Tauranga Limited (NZSE:POT) has announced that it will be increasing its dividend on the 1st of October to NZ$0.088. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.
Check out our latest analysis for Port of Tauranga
Port of Tauranga Doesn't Earn Enough To Cover Its Payments
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Port of Tauranga was paying out quite a large proportion of both earnings and cash flow, with the dividend being 148% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
The next 12 months is set to see EPS grow by 10.6%. If the dividend continues on its recent course, the payout ratio in 12 months could be 110%, which is a bit high and could start applying pressure to the balance sheet.
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$0.06, compared to the most recent full-year payment of NZ$0.14. This works out to be a compound annual growth rate (CAGR) of approximately 8.4% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
Port of Tauranga May Find It Hard To Grow The Dividend
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings has been rising at 4.2% per annum over the last five years, which admittedly is a bit slow. Slow growth and a high payout ratio could mean that Port of Tauranga has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
Port of Tauranga's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We don't think Port of Tauranga is a great stock to add to your portfolio if income is your focus.
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. For instance, we've picked out 1 warning sign for Port of Tauranga that investors should take into consideration. 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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