TECO Electric & Machinery (TWSE:1504) Is Increasing Its Dividend To NT$2.20

The board of TECO Electric & Machinery Co., Ltd. (TWSE:1504) has announced that it will be paying its dividend of NT$2.20 on the 15th of July, an increased payment from last year's comparable dividend. This will take the annual payment to 4.1% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for TECO Electric & Machinery

TECO Electric & Machinery's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, TECO Electric & Machinery's was paying out quite a large proportion of earnings and 95% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Over the next year, EPS is forecast to expand by 17.8%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78% - on the higher side, but we wouldn't necessarily say this is unsustainable.

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 NT$1.10 in 2014, and the most recent fiscal year payment was NT$2.20. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

TECO Electric & Machinery Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. TECO Electric & Machinery has impressed us by growing EPS at 9.1% per year over the past five years. Past earnings growth has been decent, but unless this is one of those rare businesses that can grow without additional capital investment or marketing spend, we'd generally expect the higher payout ratio to limit its future growth prospects.

Our Thoughts On TECO Electric & Machinery's Dividend

Overall, we always like to see the dividend being raised, but we don't think TECO Electric & Machinery will make a great income stock. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for TECO Electric & Machinery that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.