It Might Not Be A Great Idea To Buy TT Electronics plc (LON:TTG) For Its Next Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TT Electronics plc (LON:TTG) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, TT Electronics investors that purchase the stock on or after the 14th of September will not receive the dividend, which will be paid on the 12th of October.

The company's upcoming dividend is UK£0.021 a share, following on from the last 12 months, when the company distributed a total of UK£0.065 per share to shareholders. Calculating the last year's worth of payments shows that TT Electronics has a trailing yield of 3.8% on the current share price of £1.71. If you buy this business for its dividend, you should have an idea of whether TT Electronics's dividend is reliable and sustainable. So we need to investigate whether TT Electronics can afford its dividend, and if the dividend could grow.

Check out our latest analysis for TT Electronics

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. TT Electronics lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Thankfully its dividend payments took up just 35% of the free cash flow it generated, which is a comfortable payout ratio.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. TT Electronics reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TT Electronics has delivered an average of 2.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Remember, you can always get a snapshot of TT Electronics's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Is TT Electronics worth buying for its dividend? It's hard to get used to TT Electronics paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

So if you're still interested in TT Electronics despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 2 warning signs for TT Electronics (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.