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NZX Limited (NZSE:NZX) will pay a dividend of NZ$0.0365 on the 2nd of April. Based on this payment, the dividend yield on the company's stock will be 3.7%, which is an attractive boost to shareholder returns.
See our latest analysis for NZX
NZX's Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate NZX's Could Struggle to Maintain Dividend Payments In The Future
NZX's Future Dividends May Potentially Be At Risk
If the payments aren't sustainable, a high yield for a few years won't matter that much. However, based ont he last payment, NZX was earning enough to cover the dividend pretty comfortably. However, with more than 75% of free cash flow being paid out to shareholders, future growth could potentially be constrained.
Looking forward, earnings per share is forecast to fall by 9.1% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 100%, which could put the dividend in jeopardy if the company's earnings don't improve.
NZX Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was NZ$0.06 in 2015, and the most recent fiscal year payment was NZ$0.061. Dividend payments have been growing, but very slowly over the period. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
The Dividend Has Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that NZX has grown earnings per share at 7.9% per year over the past five years. NZX definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for NZX that investors should know about before committing capital to this stock. Is NZX 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.