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

Transmissora Aliança de Energia Elétrica S.A. (BVMF:TAEE11) has announced that it will be increasing its dividend from last year's comparable payment on the 16th of May to R$1.13. This makes the dividend yield about the same as the industry average at 6.1%.

View our latest analysis for Transmissora Aliança de Energia Elétrica

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

We aren't too impressed by dividend yields unless they can be sustained over time. The last payment was quite easily covered by earnings, but it made up 110% of 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.

Over the next year, EPS is forecast to fall by 8.2%. 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

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was R$2.31, compared to the most recent full-year payment of R$2.17. The dividend has shrunk at a rate of less than 1% a year over this period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

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

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. It's encouraging to see that Transmissora Aliança de Energia Elétrica has been growing its earnings per share at 5.0% a year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On Transmissora Aliança de Energia Elétrica's Dividend

Overall, we always like to see the dividend being raised, but we don't think Transmissora Aliança de Energia Elétrica will make a great income stock. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Transmissora Aliança de Energia Elétrica (2 are a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.