Transmissora Aliança de Energia Elétrica (BVMF:TAEE11) Is Increasing Its Dividend To R$1.13

The board of Transmissora Aliança de Energia Elétrica S.A. (BVMF:TAEE11) has announced that it will be paying its dividend of R$1.13 on the 16th of May, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 6.1%, which is fairly typical for the industry.

See our latest analysis for Transmissora Aliança de Energia Elétrica

Transmissora Aliança de Energia Elétrica Is Paying Out More Than It Is Earning

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Transmissora Aliança de Energia Elétrica's dividend was only 55% of earnings, however it was paying out 110% of free cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to fall by 8.2% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 97%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was R$1.51, compared to the most recent full-year payment of R$2.17. This works out to be a compound annual growth rate (CAGR) of approximately 3.7% a year over that time. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See Transmissora Aliança de Energia Elétrica's Dividend Growing

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Transmissora Aliança de Energia Elétrica has impressed us by growing EPS at 5.0% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Transmissora Aliança de Energia Elétrica's payments are rock solid. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Transmissora Aliança de Energia Elétrica (of which 2 don't sit too well with us!) you should know about. 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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