Genesis Energy Limited (NZSE:GNE) has announced that it will be increasing its dividend from last year's comparable payment on the 6th of October to NZ$0.1035. This will take the annual payment to 7.0% of the stock price, which is above what most companies in the industry pay.

Check out our latest analysis for Genesis Energy

Genesis Energy Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Genesis Energy's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

Over the next year, EPS is forecast to fall by 55.3%. If the dividend continues along the path it has been on recently, the company could be paying out more than double what it is earning, which is definitely a bit high to be sustainable going forward. historic-dividend

Genesis Energy Doesn't Have A Long Payment History

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 annual payment during the last 9 years was NZ$0.132 in 2014, and the most recent fiscal year payment was NZ$0.176. This works out to be a compound annual growth rate (CAGR) of approximately 3.2% a year over that time. Genesis Energy hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

Genesis Energy's Dividend Might Lack Growth

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Genesis Energy has impressed us by growing EPS at 56% per year over the past five years. While EPS is growing rapidly, Genesis Energy paid out a very high 95% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.



Our Thoughts On Genesis Energy's Dividend

Overall, we always like to see the dividend being raised, but we don't think Genesis Energy will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for Genesis Energy (of which 1 is potentially serious!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.