South Port New Zealand Limited (NZSE:SPN) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Readers hoping to buy South Port New Zealand Limited (NZSE:SPN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is two business days before a company's record date in most cases, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, South Port New Zealand investors that purchase the stock on or after the 2nd of November will not receive the dividend, which will be paid on the 11th of November.
The company's upcoming dividend is NZ$0.2411764 a share, following on from the last 12 months, when the company distributed a total of NZ$0.29 per share to shareholders. Last year's total dividend payments show that South Port New Zealand has a trailing yield of 3.5% on the current share price of NZ$8.20. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether South Port New Zealand can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately South Port New Zealand's payout ratio is modest, at just 47% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (54%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that South Port New Zealand's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Check out our latest analysis for South Port New Zealand
Click here to see how much of its profit South Port New Zealand paid out over the last 12 months.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at South Port New Zealand, with earnings per share up 8.5% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. South Port New Zealand has delivered an average of 1.1% per year annual increase in its dividend, based on the past 10 years of dividend payments.
The Bottom Line
Has South Port New Zealand got what it takes to maintain its dividend payments? Earnings per share growth has been modest, and it's interesting that South Port New Zealand is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. Overall, it's not a bad combination, but we feel that there are likely more attractive dividend prospects out there.
Want to learn more about South Port New Zealand? Here's a visualisation of its historical rate of revenue and earnings growth.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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