The board of Genesis Energy Limited (NZSE:GNE) has announced that it will pay a dividend on the 11th of October, with investors receiving NZ$0.0824 per share. The dividend yield of 6.1% is still a nice boost to shareholder returns, despite the cut.
See our latest analysis for Genesis Energy
Genesis Energy Doesn’t Earn Enough To Cover Its Payments
If the payments aren’t sustainable, a high yield for a few years won’t matter that much. Before making this announcement, Genesis Energy’s dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don’t think there is much reason to worry.
Over the next year, EPS is forecast to fall by 15.7%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 167%, which could put the dividend under pressure if earnings don’t start to improve.
Dividend Volatility
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of NZ$0.132 in 2014 to the most recent total annual payment of NZ$0.14. Dividend payments have been growing, but very slowly over the period. 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.
Dividend Growth Could Be Constrained
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It’s encouraging to see that Genesis Energy has been growing its earnings per share at 16% a year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.
In Summary
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn’t been great. This company is not in the top tier of income providing stocks.
It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We’ve spotted 3 warning signs for Genesis Energy (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
