Genesis Energy Limited (NZSE:GNE) will increase its dividend from last year's comparable payment on the 10th of April to NZ$0.0839. This makes the dividend yield 6.3%, which is above the industry average.

View our latest analysis for Genesis Energy

Genesis Energy's Projections Indicate Future Payments May Be Unsustainable

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 94% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

EPS is set to fall by 16.3% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 136%, which could put the dividend in jeopardy if the company's earnings don't improve.NZSE:GNE Historic Dividend February 26th 2025

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was NZ$0.132 in 2015, and the most recent fiscal year payment was NZ$0.14. Dividend payments have been growing, but very slowly over the period. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Genesis Energy Might Find It Hard To Grow Its Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Genesis Energy has impressed us by growing EPS at 52% per year over the past five years. However, Genesis Energy isn't reinvesting a lot back into the business, so we wonder how quickly it will be able to grow in the future.

Our Thoughts On Genesis Energy's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Genesis Energy (of which 1 doesn't sit too well with us!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.

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