TPG Telecom (ASX:TPG) Has Announced A Dividend Of A$0.09

TPG Telecom Limited (ASX:TPG) will pay a dividend of A$0.09 on the 11th of October. This payment means the dividend yield will be 3.2%, which is below the average for the industry.

Check out our latest analysis for TPG Telecom

TPG Telecom Is Paying Out More Than It Is Earning

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. At the time of the last dividend payment, TPG Telecom was paying out a very large proportion of what it was earning and 128% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

EPS is set to fall by 28.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 119%, which could put the dividend in jeopardy if the company's earnings don't improve.

TPG Telecom Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2021, the dividend has gone from A$0.075 total annually to A$0.18. This means that it has been growing its distributions at 55% per annum over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. TPG Telecom's EPS has fallen by approximately 18% per year during the past three years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

TPG Telecom's Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for TPG Telecom that investors should know about before committing capital to this stock. Is TPG Telecom not quite the opportunity you were looking for? Why not check out 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.