Genesis Energy (NZSE:GNE) Has Announced That It Will Be Increasing Its Dividend To NZ$0.1035

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Genesis Energy Limited's (NZSE:GNE) dividend will be increasing from last year's payment of the same period to NZ$0.1035 on 6th of October. This will take the dividend yield to an attractive 7.2%, providing a nice boost to shareholder returns.

See our latest analysis for Genesis Energy

Genesis Energy Is Paying Out More Than It Is Earning

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Genesis Energy's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Over the next year, EPS is forecast to fall by 51.8%. Assuming the dividend continues along recent trends, we believe the payout ratio could reach over 200%, which could put the dividend under pressure if earnings don't start to improve.

historic-dividend
NZSE:GNE Historic Dividend August 28th 2023

Genesis Energy Is Still Building Its Track Record

It is great to see that Genesis Energy has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2014, the dividend has gone from NZ$0.132 total annually to NZ$0.176. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Genesis Energy's Dividend Might Lack Growth

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Genesis Energy has grown earnings per share at 56% per year over the past five years. While EPS is growing rapidly, Genesis Energy paid out a very high 95% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Genesis Energy has 3 warning signs (and 1 which is a bit concerning) we think you should know about. Is Genesis Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.