Telecom Plus (LON:TEP) Is Due To Pay A Dividend Of £0.36

The board of Telecom Plus Plc (LON:TEP) has announced that it will pay a dividend of £0.36 per share on the 15th of December. This will take the annual payment to 5.5% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Telecom Plus

Telecom Plus' Earnings Easily Cover The Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Based on the last payment, the company wasn't making enough to cover what it was paying to shareholders. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.

Over the next year, EPS is forecast to expand by 27.3%. If the dividend continues along recent trends, we estimate the payout ratio could reach 81%, which is on the higher side, but certainly still feasible.

Telecom Plus Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from £0.31 total annually to £0.92. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Telecom Plus' Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Telecom Plus has been growing its earnings per share at 17% a year over the past five years. While EPS is growing at a decent rate, but future growth could be limited by the amount of earnings being paid out to shareholders.

The Dividend Could Prove To Be Unreliable

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Telecom Plus has 3 warning signs (and 2 which are significant) we think you should know about. If you are a dividend investor, you might also want to look at our curated 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.