In This Article:
It looks like Port of Tauranga Limited (NZSE:POT) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Port of Tauranga's shares on or after the 22nd of September, you won't be eligible to receive the dividend, when it is paid on the 7th of October.
The company's next dividend payment will be NZ$0.096 per share, on the back of last year when the company paid a total of NZ$0.15 to shareholders. Based on the last year's worth of payments, Port of Tauranga stock has a trailing yield of around 2.2% on the current share price of NZ$6.55. If you buy this business for its dividend, you should have an idea of whether Port of Tauranga's dividend is reliable and sustainable. As a result, readers should always check whether Port of Tauranga has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Port of Tauranga
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 89% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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 77% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that Port of Tauranga'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Port of Tauranga, with earnings per share up 5.6% 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. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.