It looks like NZX Limited (NZSE:NZX) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 3rd of September, you won’t be eligible to receive this dividend, when it is paid on the 18th of September.
NZX’s next dividend payment will be NZ$0.035 per share, and in the last 12 months, the company paid a total of NZ$0.061 per share. Looking at the last 12 months of distributions, NZX has a trailing yield of approximately 3.7% on its current stock price of NZ$1.64. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether NZX can afford its dividend, and if the dividend could grow.
Check out our latest analysis for NZX
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year NZX paid out 98% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.
Generally, the higher a company’s payout ratio, the more the dividend is at risk of being reduced.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see NZX earnings per share are up 3.9% per annum over the last five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, NZX has lifted its dividend by approximately 8.1% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is NZX worth buying for its dividend? NZX has been growing earnings per share at a reasonable rate, but over the last year its dividend was not well covered by earnings. These characteristics don’t generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
With that in mind though, if the poor dividend characteristics of NZX don’t faze you, it’s worth being mindful of the risks involved with this business. To help with this, we’ve discovered 2 warning signs for NZX (1 shouldn’t be ignored!) that you ought to be aware of before buying the shares.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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