{"id":10116,"date":"2025-02-13T12:12:42","date_gmt":"2025-02-13T12:12:42","guid":{"rendered":"https:\/\/finderica.com\/?p=10116"},"modified":"2025-02-13T12:12:42","modified_gmt":"2025-02-13T12:12:42","slug":"is-this-12-yield-about-to-go-down-under","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=10116","title":{"rendered":"Is This 12% Yield About to Go \u201cDown Under\u201d?"},"content":{"rendered":"
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New Zealand is the most beautiful place I have ever visited. I was thinking about it recently because my son just returned from a trip there, so when a Wealthy Retirement<\/em> reader asked me to take a look at the dividend safety of Spark New Zealand<\/strong> (OTC: SPKKY), I jumped at the chance.<\/p>\n

While I loved pretty much everything about New Zealand, I\u2019m not sure I\u2019d feel the same way about Spark\u2019s dividend safety.<\/p>\n

Growth has been hard to come by for the mobile phone company, which serves a nation of just 5.2 million people.<\/p>\n

Revenue has been flat for a decade, and cash flow has been falling for several years.<\/p>\n

\"Chart:<\/a><\/p>\n

Meanwhile, the company is paying way<\/em> more in dividends than it\u2019s generating in free cash flow.<\/p>\n

In fiscal 2024, which ended in June, Spark paid shareholders $300 million while producing only $110 million in free cash flow. That\u2019s an enormously high payout ratio of 271%.<\/p>\n

<\/a>This fiscal year, the discrepancy is forecast to be even worse, with the company slated to bring in just $92 million in free cash flow while paying out $314 million in dividends. That would push the payout ratio even higher, to 340%. (Remember, I generally like to see payout ratios of 75% or lower.)<\/p>\n

\"Chart:<\/a><\/p>\n

Spark only has $36 million in cash, so the only way it will be able to maintain its dividend is if it takes on more debt.<\/p>\n

The payout to shareholders consists of semiannual regular and special dividends, which have been fairly consistent. Combined, the yield comes out to a whopping 12%.<\/p>\n

The company hasn\u2019t cut the dividend in at least 12 years and has been raising it for the past few, so it has a solid dividend-paying track record \u2013 though it really can\u2019t afford the dividend that it is currently paying. (There have been a few slight reductions in the dividends paid to U.S. investors, but those are because of changes to the exchange rate, not actual reductions to the dividend.)<\/p>\n

The first thing the company needs to do is get rid of the special dividend, but even that won\u2019t be enough to make the dividend sustainable.<\/p>\n

Despite my fondness for all things Kiwi, I cannot give Spark New Zealand a good rating for dividend safety.<\/p>\n

Dividend Safety Rating: F<\/strong><\/p>\n

\"Dividend<\/p>\n

What stock\u2019s dividend safety would you like me to analyze next? Send me your requests by clicking here.<\/p>\n

You can also take a look to see whether we\u2019ve written about your favorite stock recently. Just click on the word \u201cSearch\u201d at the top right part of the Wealthy Retirement<\/em> homepage, type in the company name, and hit \u201cEnter.\u201d<\/p>\n

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.<\/p>\n<\/p><\/div>\n