Here's Why We're Wary Of Buying NZX's (NZSE:NZX) For Its Upcoming Dividend
It looks like NZX Limited (NZSE:NZX) is about to go ex-dividend in the next 4 days. 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 of consequence because whenever a stock is bought or sold, the trade can take two business days or more to settle. Accordingly, NZX investors that purchase the stock on or after the 15th of September will not receive the dividend, which will be paid on the 30th of September.
The company's next dividend payment will be NZ$0.037647 per share. Last year, in total, the company distributed NZ$0.063 to shareholders. Last year's total dividend payments show that NZX has a trailing yield of 4.3% on the current share price of NZ$1.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Last year NZX paid out 94% 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.
See our latest analysis for NZX
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's not encouraging to see that NZX's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. NZX's dividend payments are broadly unchanged compared to where they were 10 years ago.
Final Takeaway
Is NZX an attractive dividend stock, or better left on the shelf? While we're glad to see that its earnings aren't shrinking, we're not enamored of the fact that it's paying out 94% of last year's 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.
So if you're still interested in NZX despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Our analysis shows 1 warning sign for NZX and you should be aware of this before buying any shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.