If you are interested in cashing in on Mercury NZ Limited’s (NZSE:MCY) upcoming dividend of NZ$0.11 per share, you only have 4 days left to buy the shares before its ex-dividend date, 12 September 2018, in time for dividends payable on the 28 September 2018. What does this mean for current shareholders and potential investors? Below, I will explain how holding Mercury NZ can impact your portfolio income stream, by analysing the stock’s most recent financial data and dividend attributes.

Check out our latest analysis for Mercury NZ

How I analyze a dividend stock

When researching a dividend stock, I always follow the following screening criteria:

• Does it pay an annual yield higher than 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• Has dividend per share amount increased over the past?

• Can it afford to pay the current rate of dividends from its earnings?

• Will it be able to continue to payout at the current rate in the future?

Does Mercury NZ pass our checks?

Mercury NZ has a trailing twelve-month payout ratio of 88.7%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect MCY’s payout to increase to 113% of its earnings, which leads to a dividend yield of 4.9%. However, EPS is forecasted to fall to NZ$0.13 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income. This also brings about uncertainty around the sustainability of the payout ratio.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality is that it is too early to consider Mercury NZ as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, Mercury NZ generates a yield of 4.5%, which is on the low-side for Electric Utilities stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in Mercury NZ for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three relevant factors you should further examine: