Spark New Zealand's (NZSE:SPK) Dividend Will Be Increased To NZ$0.1588
The board of Spark New Zealand Limited (NZSE:SPK) has announced that it will be paying its dividend of NZ$0.1588 on the 6th of October, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 5.4%, which is fairly typical for the industry.
See our latest analysis for Spark New Zealand
Spark New Zealand Doesn't Earn Enough To Cover Its Payments
Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Spark New Zealand's dividend was only 44% of earnings, however it was paying out 161% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.
Over the next year, EPS is forecast to fall by 55.2%. If the dividend continues along recent trends, we estimate the payout ratio could reach 120%, which could put the dividend in jeopardy if the company's earnings don't improve.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from NZ$0.20 total annually to NZ$0.27. This implies that the company grew its distributions at a yearly rate of about 3.0% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Spark New Zealand has grown earnings per share at 25% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Spark New Zealand could prove to be a strong dividend payer.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Spark New Zealand's payments are rock solid. While Spark New Zealand is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Spark New Zealand (2 make us 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.
