Stock Analysis

AS Tallinna Vesi (TAL:TVE1T) Has Announced That Its Dividend Will Be Reduced To €0.33

TLSE:TVE1T
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AS Tallinna Vesi (TAL:TVE1T) is reducing its dividend from last year's comparable payment to €0.33 on the 28th of June. This means that the annual payment will be 2.8% of the current stock price, which is in line with the average for the industry.

See our latest analysis for AS Tallinna Vesi

AS Tallinna Vesi's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, AS Tallinna Vesi's dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. This is a pretty unsustainable practice, and could be risky if continued for the long term.

Over the next year, EPS could expand by 4.1% if recent trends continue. If the dividend continues along recent trends, we estimate the payout ratio will be 67%, which is in the range that makes us comfortable with the sustainability of the dividend.

historic-dividend
TLSE:TVE1T Historic Dividend June 3rd 2023

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was €0.87 in 2013, and the most recent fiscal year payment was €0.33. Doing the maths, this is a decline of about 9.2% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

Given that dividend payments have been shrinking like a glacier in a warming world, we need to check if there are some bright spots on the horizon. Earnings have grown at around 4.1% a year for the past five years, which isn't massive but still better than seeing them shrink. Slow growth and a high payout ratio could mean that AS Tallinna Vesi has maxed out the amount that it has been able to pay to shareholders. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

In Summary

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for AS Tallinna Vesi (1 shouldn't be ignored!) that you should be aware of before investing. Is AS Tallinna Vesi 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.