TKM Grupp's (TAL:TKM1T) Shareholders Will Receive A Smaller Dividend Than Last Year

TKM Grupp AS (TAL:TKM1T) is reducing its dividend from last year's comparable payment to €0.65 on the 3rd of April. The dividend yield of 6.5% is still a nice boost to shareholder returns, despite the cut.

Check out our latest analysis for TKM Grupp

TKM Grupp's Projections Indicate Future Payments May Be Unsustainable

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, TKM Grupp's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

EPS is set to fall by 2.9% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio could reach 105%, which could put the dividend in jeopardy if the company's earnings don't improve.

TKM Grupp Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from €0.40 total annually to €0.65. This means that it has been growing its distributions at 5.0% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. In the last five years, TKM Grupp's earnings per share has shrunk at approximately 2.9% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 2 warning signs for TKM Grupp that investors should take into consideration. Is TKM Grupp not quite the opportunity you were looking for? Why not check out our selection of top 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.