Don't Race Out To Buy TPG Telecom Limited (ASX:TPG) Just Because It's Going Ex-Dividend

TPG Telecom Limited (ASX:TPG) stock is about to trade ex-dividend in two days. Typically, the ex-dividend date is two business days before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves at least two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase TPG Telecom's shares before the 4th of September in order to be eligible for the dividend, which will be paid on the 3rd of October.

The company's upcoming dividend is AU$0.09 a share, following on from the last 12 months, when the company distributed a total of AU$0.18 per share to shareholders. Calculating the last year's worth of payments shows that TPG Telecom has a trailing yield of 3.4% on the current share price of AU$5.23. 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! As a result, readers should always check whether TPG Telecom has been able to grow its dividends, or if the dividend might be cut.

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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. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. 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. Fortunately, it paid out only 37% of its free cash flow in the past year.

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?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. TPG Telecom reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. TPG Telecom has delivered an average of 19% per year annual increase in its dividend, based on the past five years of dividend payments.

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

Has TPG Telecom got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

With that being said, if you're still considering TPG Telecom as an investment, you'll find it beneficial to know what risks this stock is facing. Case in point: We've spotted 1 warning sign for TPG Telecom 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.