AS Tallinna Vesi's (TAL:TVE1T) Upcoming Dividend Will Be Larger Than Last Year's

AS Tallinna Vesi (TAL:TVE1T) will increase its dividend from last year's comparable payment on the 27th of June to €0.51. This will take the dividend yield to an attractive 4.8%, providing a nice boost to shareholder returns.

View our latest analysis for AS Tallinna Vesi

AS Tallinna Vesi's Dividend Is Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend made up quite a large portion of free cash flows, and this was made worse by the lack of free cash flows. Generally, we think that this would be a risky long term practice.

If the company can't turn things around, EPS could fall by 11.9% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 85%, which is definitely on the higher side.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was €0.87 in 2014, and the most recent fiscal year payment was €0.51. Doing the maths, this is a decline of about 5.2% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

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. AS Tallinna Vesi's earnings per share has shrunk at 12% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

AS Tallinna Vesi's Dividend Doesn't Look Sustainable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for AS Tallinna Vesi (of which 1 is significant!) you should know about. 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.