Mercury NZ (NZSE:MCY) Is Paying Out A Larger Dividend Than Last Year
Mercury NZ Limited's (NZSE:MCY) dividend will be increasing from last year's payment of the same period to NZ$0.1412 on 30th of September. This takes the annual payment to 3.5% of the current stock price, which is about average for the industry.
See our latest analysis for Mercury NZ
Mercury NZ Is Paying Out More Than It Is Earning
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last dividend, Mercury NZ is earning enough to cover the payment, but then it makes up 143% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.
Over the next year, EPS is forecast to fall by 42.7%. If the dividend continues along recent trends, we estimate the payout ratio could reach 126%, which could put the dividend in jeopardy if the company's earnings don't 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. Since 2013, the annual payment back then was NZ$0.13, compared to the most recent full-year payment of NZ$0.218. This implies that the company grew its distributions at a yearly rate of about 5.9% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Mercury NZ has seen EPS rising for the last five years, at 20% per annum. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.
Our Thoughts On Mercury NZ's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Mercury NZ's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 3 warning signs for Mercury NZ (1 makes us a bit uncomfortable!) 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 yield dividend stocks.
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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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