Genesis Energy Limited (NZSE:GNE) has recently announced that it will be increasing its dividend payment on October 6th to NZ$0.1035. This represents an annual payment amounting to 7.0% of the stock price, a higher dividend yield compared to most companies in the industry.
While impressive, it is important to consider if the dividend payments can be sustained. Although Genesis Energy’s profits did not cover the dividend based on the last payment, the company generated enough cash to easily cover it. Cash flow is often considered more significant than accounting measures of profit, suggesting that there is no immediate cause for concern.
However, with a projected decrease in EPS of 55.3% over the next year, if the dividend continues on its current trajectory, the company could potentially be paying out more than double what it earns. This raises concerns about the sustainability of the dividend in the long-term.
Furthermore, Genesis Energy has not established a long payment history, casting some doubt on its ability to consistently increase dividends. While the compound annual growth rate (CAGR) of its dividend over the past nine years is approximately 3.2% per year, this is not a substantial record of growth.
Despite impressive growth in EPS at 56% per year over the past five years, Genesis Energy has paid out a high 95% of its income as dividends. This indicates that if earnings continue to grow, the dividend may be sustainable, but the high payout ratio should be monitored closely.
Overall, while it is positive to see an increase in the dividend payment, it is unlikely that Genesis Energy will be an exceptional income stock. The dividend payments have been somewhat unstable, and the growth potential is not significant. However, with the dividend well covered by cash flows in the short term, it could prove to be reliable. It is important for investors to consider all aspects of stock performance and not solely rely on the dividend income offered by a company.