Telecom Plus PLC (LON:TEP) will pay a dividend of UK£0.30 on the 30th of July. This means the annual payment is 5.1% of the current stock price, which is above the average for the industry.
Telecom Plus Is Paying Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 137% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.
Over the next year, EPS could expand by 4.8% if the company continues along the path it has been on recently. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 139% over the next year.
Telecom Plus Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from UK£0.22 in 2011 to the most recent annual payment of UK£0.60. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 4.8% per annum over the last five years, which admittedly is a bit slow. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. This gives limited room for the company to raise the dividend in the future.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Telecom Plus' payments, as there could be some issues with sustaining them into the future. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Telecom Plus is a great stock to add to your portfolio if income is your focus.
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 2 warning signs for Telecom Plus (1 is significant!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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