TPG Telecom (ASX:TPG) Is Increasing Its Dividend To A$0.09

The board of TPG Telecom Limited (ASX:TPG) has announced that it will be increasing its dividend by 5.9% on the 13th of April to A$0.09, up from last year's comparable payment of A$0.085. Despite this raise, the dividend yield of 3.6% is only a modest boost to shareholder returns.

View our latest analysis for TPG Telecom

TPG Telecom Is Paying Out More Than It Is Earning

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, TPG Telecom's dividend was only 65% of earnings, however it was paying out 129% of free cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

EPS is set to fall by 43.3% over the next 12 months. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 122%, which is definitely a bit high to be sustainable going forward.

TPG Telecom Doesn't Have A Long Payment History

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. The dividend has gone from an annual total of A$0.075 in 2021 to the most recent total annual payment of A$0.18. This works out to be a compound annual growth rate (CAGR) of approximately 55% a year over that time. TPG Telecom has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. TPG Telecom has seen EPS rising for the last five years, at 35% per annum. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that TPG Telecom could prove to be a strong dividend payer.

Our Thoughts On TPG Telecom's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While TPG Telecom is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, TPG Telecom has 2 warning signs (and 1 which is concerning) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.