The unfathomable impact of the medical emergency across the world seem to root out the optimism of the people. The whirlwinds of uncertainty girdling the stock market are driving investors to abandon their risky investments. The traders in the current stock picker’s market, eye for something compelling that can withstand the economic shudders induced by the medical calamity.
Amidst the turbulent scenario, even the foothold of the world’s prominent legacies appears to be wavering. The apple of investor’s eye, Alphabet Inc. and Amazon stocks on NASDAQ fell by around 23.8% and 9% respectively between 19 February 2020 to 31 March 2020. Likewise, the sell-off of NZ stocks continued along with coronavirus-driven market crash as the investors sensed the approaching financial crisis. Baffled by the ongoing stocks’ movement in the New Zealand market, while some investors take a wait and see approach, the others look to sustain their income flows through cherry-picking the dividend stocks.
NZ Dividend stocks
Unlike the growth stocks that promise high hope, the dividend stocks are known for a consistent income stream. When the rates of government bonds are record low, and there lies uncertainty in the stock market, a regular and fair dividend-paying stock appears analogous to the elixir. The dividend yields often serve as the principle guiding star aiding the investors to analyse the lucrativeness of the investment.
The blue-chip companies with the stability in the operations are often regarded as popular dividend stocks in NZ. As strong financial positions back the activities, the probability of dividend deferment also reduces, sending a positive note to the investors.
The significant players in the utility, real estate and healthcare sectors are often found to provide consistent dividend flow with reasonable dividend yield. One such dividend stock that has conspicuously grown is Meridian Energy Limited (NZX: MEL). The consistently increasing dividend payment over the years and the fair dividend yield has made MEL stock a popular choice among the investors looking for a consistent stream of income flow.
Source: MEL NZX Release
Story of Meridian Energy
Speaking of the sustained dividend returns, New Zealand Meridian has garnered popularity over the years owing to the fair dividend yield. Operating in the Renewable Electricity generation area, the company appears to be cushioned against the economic setbacks due to the sustained demand for energy. The reliability in the income flows with significant dividend yield and not the unsurmountable growth opportunities have been the accelerating factor that has boosted the Company’s value. However, the past circumstances further fuelled by the impact of coronavirus could loosen its bond with the investor’s sentiments.
With this backdrop, let us tell you a captivating tale of the fair dividend-paying Meridian Energy.
Growth and Cheerful Phase
Meridian Energy has enjoyed a continuous swell at its share price as lying in the utility sector; it found itself shielded against the minor market downturns. The company for the half-year ending 31 December 2019, has modest revenue growth of 5% compared to the previous reporting period, while its net profit increased by 26%. The growth opportunities in the electric generation industry are limited compared to the innovative tech-driven sectors. Yet, Meridian Energy price growth dominated the majority of the players placed in the growth sectors.
In the year 2019, the Company’s stock price grew by over 46% showing robust performance. The effective stock performance is the demonstrator of the necessary dividend yield.
Meanwhile, the Company also focussed on improving the renewable options pipeline as it was engaged in several alternative energy-centric operations such as in Harapaki wind farm, Lake Pukaki, etc. However, there remain different challenges concerning the unclarity of the decarbonisation demand and renewables consenting.
A growing Question on Demand Downfall
The stability in the cash inflows of any company is reliant on the consistency of the demand. And when there lies a powerful industrial customer at the other end of the supply chain, the blow of the demand fluctuation can be severe. Meridian Energy acknowledged a similar situation as the cloud of uncertainty hovered over the operations of one of its prominent consumers. New Zealand’s Aluminium Smelter (NZAS) utilises the energy grid for sourcing the power that comes from the Manapouri hydro scheme of Meridian Energy.
On 23 October last year amidst the clouding discussions, Rio Tinto hinted at the probable curtailment and closure of Tiwai Point’s New Zealand’s Aluminium Smelter (NZAS) which is a joint venture between Sumitomo Chemical Company Limited (20.64%) and Rio Tinto (79.36%). Rio Tinto highlighted conducting the strategic review to ascertain the competitive position and viability of the smelter. The Company cited the high cost of electricity against the low prices of aluminium as the prominent factors that make the ongoing operation at Tiwai point smelter unprofitable.
Following the announcement by one of its prominent electricity users, Meridian stocks plunged from $5.420 noted on 22 October to $4.95 intraday on 23 October 2019. The share price of the Company dwindled by over 16% by the end of October since the announcement.
However, the Electricity Authority announcement on 11 February 2020 appears to be infusing positive hope as it eased the NZAS path for availing the discount of $64 million on the power transmission bill. Under the effect of the announcement, Meridian share price rose from $5.450 to $5.60 intraday on 11 February 2020.
A Potential Blow
The escalating global cases of coronavirus without any signs of a potential slowdown is generating massive widespread fear. Struck by the bearish wave of uncertainty, MEL operating report for Feb 2020 highlighted the decrease in the national storage from 126% to a historic low of 111% in the month to 10 March 2020. Aluminium Smelter’s load in NZ was below the contract level of 622MW during February 2020 while the retailer’s sale volume grew by 20.9% compared to February 2019.
On 31 March 2020, Meridian Energy confirmed that Tiwai Point smelter located in Southland under its 50MW Potline 4 contract is planning to exercise its right for reducing the consumption for up to six months. In its effort to comply with the government’s restriction and ensure safety amidst the Covid-19, Rio Tinto announced the scaling down of operations in the smelter by closing potline 4.
The Company driven by the relatively stable nature of its industry continue to deliver good dividend yield, which mostly enjoys investor’s attention. However, the chaos and volatility clouding the market create a hazy situation for the Company. Meanwhile the Company on 1 April 2020 also reported that no update yet had been provided concerning Rio Tinto review of Tiwai Smelter. As the demand uncertainty hovers over Meridian Energy, nothing concrete can be said regarding its future progress. The demand in the coming times would prominently depend on the duration of the epidemic alongside the decision on the Southland smelter.