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Port of Tauranga Limited (NZSE:POT) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, 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 takes at least two business day to settle. This means that investors who purchase Port of Tauranga's shares on or after the 19th of September will not receive the dividend, which will be paid on the 4th of October.
The company's next dividend payment will be NZ$0.1023859 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 has a trailing yield of 2.6% on the current stock price of NZ$5.68. 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.
Check out 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. Last year Port of Tauranga paid out 109% of its profits as dividends to shareholders, suggesting the dividend is not well covered by 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. The company paid out 109% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
Cash is slightly more important than profit from a dividend perspective, but given Port of Tauranga's payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see Port of Tauranga's earnings per share have been shrinking at 2.3% a year over the previous five years.