Stock Analysis

TT Electronics (LON:TTG) Is Increasing Its Dividend To £0.02

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LSE:TTG
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TT Electronics plc (LON:TTG) will increase its dividend on the 13th of October to £0.02, which is 11% higher than last year's payment from the same period of £0.018. This will take the annual payment to 3.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for TT Electronics

TT Electronics' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, TT Electronics was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 27% which is fairly sustainable.

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LSE:TTG Historic Dividend August 7th 2022

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 £0.032 in 2012, and the most recent fiscal year payment was £0.056. This implies that the company grew its distributions at a yearly rate of about 5.8% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth Is Doubtful

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's not great to see that TT Electronics' earnings per share has fallen at approximately 7.2% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

TT Electronics' Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think TT Electronics will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think TT Electronics is a great stock to add to your portfolio if income is your focus.

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. For example, we've picked out 1 warning sign for TT Electronics that investors should know about before committing capital to this stock. Is TT Electronics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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