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Don't Buy South Port New Zealand Limited (NZSE:SPN) For Its Next Dividend Without Doing These Checks

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South Port New Zealand Limited (NZSE:SPN) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, South Port New Zealand investors that purchase the stock on or after the 29th of October will not receive the dividend, which will be paid on the 9th of November.

The company's next dividend payment will be NZ$0.23 per share, on the back of last year when the company paid a total of NZ$0.27 to shareholders. Last year's total dividend payments show that South Port New Zealand has a trailing yield of 2.9% on the current share price of NZ$9.4. If you buy this business for its dividend, you should have an idea of whether South Port New Zealand's dividend is reliable and sustainable. As a result, readers should always check whether South Port New Zealand has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for South Port New Zealand

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. South Port New Zealand is paying out an acceptable 66% of its profit, a common payout level among most companies. 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. South Port New Zealand paid out more free cash flow than it generated - 145%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.

South Port New Zealand paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Cash is king, as they say, and were South Port New Zealand to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.

Click here to see how much of its profit South Port New Zealand paid out over the last 12 months.

historic-dividend
historic-dividend

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 South Port New Zealand earnings per share are up 4.2% per annum over the last five years. Earnings have been growing somewhat, but we're concerned dividend payments consumed most of the company's cash flow over the past year.

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 3.0% dividend growth per year on average over the past 10 years. 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.

The Bottom Line

Has South Port New Zealand got what it takes to maintain its dividend payments? Earnings per share have grown somewhat, although South Port New Zealand paid out over half its profits and the dividend was not well covered by free cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Curious about whether South Port New Zealand has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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