Spark New Zealand Limited (NZSE:SPK) has announced that it will pay a dividend of NZ$0.15 per share on the 1st of October. Based on this payment, the dividend yield on the company's stock will be 6.2%, which is an attractive boost to shareholder returns.
Spark New Zealand Is Paying Out More Than It Is Earning
If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, Spark New Zealand was paying only paying out a fraction of earnings, but the payment was a massive 100% of cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Earnings per share is forecast to rise by 5.5% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 134% over the next year.
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the first annual payment was NZ$0.14, compared to the most recent full-year payment of NZ$0.25. This means that it has been growing its distributions at 6.0% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
Spark New Zealand 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. Spark New Zealand hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, Spark New Zealand could always pay out a higher proportion of earnings to increase shareholder returns.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Spark New Zealand has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. We have also put together a list of global stocks with a solid dividend.
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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