Does TalkTalk Telecom Group PLC (LON:TALK) Have A Place In Your Dividend Stock Portfolio?
Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, TalkTalk Telecom Group PLC (LON:TALK) has paid a dividend to shareholders. It currently yields 1.7%. Let's dig deeper into whether TalkTalk Telecom Group should have a place in your portfolio.
See our latest analysis for TalkTalk Telecom Group
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does TalkTalk Telecom Group fare?
TalkTalk Telecom Group has a trailing twelve-month payout ratio of more than 200% of earnings, meaning that the dividend is predominantly funded by retained earnings. In the near future, analysts are predicting a more sensible payout ratio of 39% which, assuming the share price stays the same, leads to a dividend yield of 2.3%. Furthermore, EPS should increase to £0.051, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view TalkTalk Telecom Group as a dividend investment. It has only been consistently paying dividends for 8 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, TalkTalk Telecom Group has a yield of 1.7%, which is on the low-side for Telecom stocks.
Next Steps:
After digging a little deeper into TalkTalk Telecom Group's yield, it's easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I've compiled three key aspects you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for TALK’s future growth? Take a look at our free research report of analyst consensus for TALK’s outlook.
- Valuation: What is TALK worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TALK is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.