Meridian Energy Is Building Its Way Into a Price Collapse - Here Is Why That Still Matters for Your Dividend

Meridian Energy is about to release its full-year FY26 results on Wednesday, 26 August 2026, and the company is expected to host a briefing alongside the announcement to walk investors through where the business stands. The headline narrative heading into the results is straightforward: after lowest earnings in a decade for FY 2025, the first half of FY2026 showed a dramatic rebound - operating cash flow of NZD 336 million, adjusted EBITDA of NZD 506 million (up 97% year-on-year), and an interim dividend raised 4% to NZD 0.064 per share. The consensus expects a positive inflection.

The false narrative here is that Meridian's earnings recovery means the storm is over. It isn't. The fundamental tension that has been eating away at this business - and this sector - is getting worse before it gets better. Meridian is the largest electricity producer in the nation, with a third of the market, generating roughly a third of the country's power, and 100% renewable electricity from renewable sources, primarily hydro and wind. That is a durable moat in most years. This is not a normal year.

New Zealand's electricity market is being flooded with new renewable capacity. Meridian itself has committed NZD 1.2 billion to renewable energy projects that will add 1.3 terawatt-hours to the national grid, including consent to build a 130MW solar farm at Bunnythorpe with battery storage, alongside additional wind and solar projects. The company told its FY26 interim investors that these investments will add 1.3 terawatt-hours to the national grid. In the same presentation, management openly acknowledged the risk of oversupply and its impact on future electricity prices.

That is the structural bind. You cannot simultaneously pour billions into adding supply and expect wholesale electricity prices to hold - let alone recover. The math is already playing out. In May 2026, average price received for generation in May was 61.7% lower than the same month last year. That number alone tells you everything you need to know about the margin pressure that is coming. Volume is up - total generation in May climbed 12% year-on-year, and retail sales volumes rose 7.8%, with residential sales surging 20.4%. But selling more at roughly a third of the price you did last year is not a recovery story. It is a re-pricing story.

What makes this different from a simple cyclical downturn is that the oversupply pressure is self-reinforcing. Every new wind farm Meridian builds, every solar array that comes online, every battery project that its competitors commission - all of it adds to the supply glut. In the New Zealand electricity market, where hydro generation accounts for approximately 60% of the country's electricity and the country has been aggressively pursuing its own net-zero transition, the convergence of record inflows and new renewable buildout has created a textbook case of abundant supply meeting structural demand that is growing too slowly to absorb it.

I've been very surprised that the stock market's reaction - shares have declined 14% over the past 12 months - hasn't been more severe given the scale of the price collapse in the wholesale market. But the reason the stock hasn't cratered is the same reason Meridian remains an investable position: the dividend and the balance sheet.

For the six months to December 2025, Meridian reported operating cash flow of NZD 336 million, up from NZD 50 million in the prior year's first half. Adjusted EBITDA nearly doubled to NZD 506 million. Net debt sits at NZD 1.7 billion, with net debt-to-adjusted EBITDA at 1.9 times - a manageable leverage ratio for a regulated utility with a government majority stake. The interim dividend was raised, and the underlying net profit after tax swung from a NZD 5 million loss in the prior half-year to a NZD 143 million profit. Analysts project Ann. EPS Est. +0.18 FY 2026 versus a NZD 0.17 loss in FY2025.

The dividend is the anchor. In my opinion, Meridian's dividend commitment - 85% imputed, growing even through the downturn - is what separates this stock from a speculative turnaround play. The company has historically returned cash to shareholders through a combination of dividends and the occasional buyback, and the current trajectory suggests the board views the dividend as a floor rather than a ceiling. That dividend growth discipline is worth more than the renewable-bull narrative the stock was riding before the earnings collapse.

There is one positive structural development worth noting. In July 2026, Meridian received Fast-track Panel approval to ease access restrictions on Lake Pūkaki hydro storage for three years, adding approximately five metres of storage depth. Chief Executive Mike Roan said this would mitigate dry-year risk and stabilize electricity prices through Winter 2028. Hydro storage is currently limited - only 23% of hydro capacity can currently be stored in lakes, and Meridian's own storage equals just 15 weeks of average generation. Additional storage gives the company the ability to hold water during wet periods and release it when prices spike during dry spells. That is a genuine operational hedge against the very oversupply problem the market is pricing in.

The strongest counterargument to my thesis is that retail growth is real, not cyclical. Meridian's retail customer base is up 14.3% year-over-year as of May 2026, and the company is transitioning to a new technology platform called Kraken that management says will enhance service and product offerings. A growing, sticky retail base does provide a floor for cash flows - retail customers pay fixed prices set at the start of each billing year, not spot wholesale prices. That insulation is meaningful over a two- to three-year horizon. But retail margins are squeezed by the same lines and transmission cost pressures that are hitting the whole sector, and management warned at the interim results that these infrastructure costs will impact electricity bills for the next three years. Higher bills mean slower customer growth or higher churn in a competitive retail market.

For investors heading into the 26 August results, here is what I will be watching. The wholesale electricity price trajectory for the full year tells you whether the oversupply glut is accelerating or plateauing. If average generation prices stay near the May 2026 trough, the company needs significantly higher volumes in the second half to make the full-year number work. The capital allocation plan matters - I want to see whether management is willing to slow the NZD 3 billion buildout if prices stay depressed, or whether they are committed to building through the downturn regardless. The dividend guidance for FY27 is the ultimate stress test: if the board raises the full-year dividend again, the market will reward that commitment. If they hold it flat, the stock will sell off. That dividend decision is the single most important output from the briefing.

That being the case, I rate Meridian Energy as a Hold at current levels. The dividend yield provides a reasonable income cushion, and the balance sheet is not stretched. But the company is positioned between two opposing forces: a structural oversupply problem that its own growth plan is exacerbating, and a dividend commitment that depends on cash flows recovering faster than wholesale prices suggest they will. In my opinion, the stock becomes a Buy only if management demonstrates willingness to pause the capital expansion, stabilize margins, and raise the FY27 dividend - or if the market delivers a deeper-than-expected sell-off that creates a better entry point. Until then, the renewable abundance narrative is Meridian's friend and its enemy, and the 26 August results will tell us which one wins.