TIM (BVMF:TIMS3) Is Paying Out A Dividend Of R$0.2685

The board of TIM S.A. (BVMF:TIMS3) has announced that it will pay a dividend on the 23rd of January, with investors receiving R$0.2685 per share. Based on this payment, the dividend yield on the company's stock will be 4.4%, which is an attractive boost to shareholder returns.

View our latest analysis for TIM

TIM's Future Dividend Projections Appear Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, TIM was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 67.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 58%, which is in the range that makes us comfortable with the sustainability of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was R$0.349 in 2014, and the most recent fiscal year payment was R$0.661. This means that it has been growing its distributions at 6.6% per annum over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. TIM might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, TIM's earnings per share has shrunk at approximately 3.2% per annum. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On TIM's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about TIM's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. 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. 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 TIM that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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