TECO Electric & Machinery (TWSE:1504) Is Paying Out A Larger Dividend Than Last Year

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 3.8% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for TECO Electric & Machinery

TECO Electric & Machinery's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, TECO Electric & Machinery's was paying out quite a large proportion of earnings and 95% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but it is still in a reasonable range to continue with.

Earnings per share is forecast to rise by 18.0% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 77% which is a bit high but can definitely be sustainable.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the dividend has gone from NT$1.10 total annually to NT$2.20. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. TECO Electric & Machinery might have put its house in order since then, but we remain cautious.

The Dividend Has Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. TECO Electric & Machinery has seen EPS rising for the last five years, at 9.1% per annum. Recently, the company has been able to grow earnings at a decent rate, but with the payout ratio on the higher end we don't think the dividend has many prospects for growth.

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. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for TECO Electric & Machinery that investors need to be conscious of moving forward. Is TECO Electric & Machinery not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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