Genesis Energy Limited (NZSE:GNE) will increase its dividend on the 1st of April to NZ$0.099. This makes the dividend yield 6.9%, which is above the industry average.

View our latest analysis for Genesis Energy

Genesis Energy Is Paying Out More Than It Is Earning

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Earnings per share is forecast to rise by 84.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 174%, which probably can't continue putting some pressure on the balance sheet. historic-dividend

Genesis Energy Is Still Building Its Track Record

Genesis Energy's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The first annual payment during the last 8 years was NZ$0.13 in 2014, and the most recent fiscal year payment was NZ$0.17. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 19% over the last five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.



Genesis Energy's Dividend Doesn't Look Great

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

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 identified 3 warning signs for Genesis Energy (2 are concerning!) that you should be aware of before investing. Is Genesis Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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