TPG Telecom (ASX:TPG) Is Paying Out A Larger Dividend Than Last Year

TPG Telecom Limited's (ASX:TPG) dividend will be increasing to AU$0.085 on 13th of April. Even though the dividend went up, the yield is still quite low at only 3.0%.

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. Before making this announcement, TPG Telecom's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

The next 12 months is set to see EPS grow by 61.7%. If the dividend continues on its recent course, the payout ratio in 12 months could be 172%, which is a bit high and could start applying pressure to the balance sheet.

TPG Telecom Is Still Building Its Track Record

The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

TPG Telecom's Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see TPG Telecom has been growing its earnings per share at 44% a year over the past five years. EPS has been growing well, but TPG Telecom has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think TPG Telecom's payments are rock solid. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 3 warning signs for TPG Telecom that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.