Dividend Investors: Don't Be Too Quick To Buy TPG Telecom Limited (ASX:TPG) For Its Upcoming Dividend

Readers hoping to buy TPG Telecom Limited (ASX:TPG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is commonly two business days before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase TPG Telecom's shares before the 14th of November in order to receive the dividend, which the company will pay on the 24th of November.

The company's next dividend payment will be AU$1.61 per share, on the back of last year when the company paid a total of AU$0.18 to shareholders. Calculating the last year's worth of payments shows that TPG Telecom has a trailing yield of 3.2% on the current share price of AU$5.65. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether TPG Telecom can afford its dividend, and if the dividend could grow.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. TPG Telecom reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.

Check out our latest analysis for TPG Telecom

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. TPG Telecom was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past five years, TPG Telecom has increased its dividend at approximately 19% a year on average.

We update our analysis on TPG Telecom every 24 hours, so you can always get the latest insights on its financial health, here.

The Bottom Line

Should investors buy TPG Telecom for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.

Although, if you're still interested in TPG Telecom and want to know more, you'll find it very useful to know what risks this stock faces. For example - TPG Telecom has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.