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NZME Limited (NZSE:NZM) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be two business days 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, NZME investors that purchase the stock on or after the 18th of March will not receive the dividend, which will be paid on the 31st of March.
The company's next dividend payment will be NZ$0.0705882 per share, and in the last 12 months, the company paid a total of NZ$0.09 per share. Based on the last year's worth of payments, NZME stock has a trailing yield of around 7.6% on the current share price of NZ$1.19. If you buy this business for its dividend, you should have an idea of whether NZME's dividend is reliable and sustainable. So we need to investigate whether NZME can afford its dividend, and if the dividend could grow.
View our latest analysis for NZME
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. NZME's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If NZME didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 67% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. NZME was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.