Ten Ren Tea's (TWSE:1233) Upcoming Dividend Will Be Larger Than Last Year's

Ten Ren Tea Co., Ltd. (TWSE:1233) has announced that it will be increasing its dividend from last year's comparable payment on the 12th of August to NT$0.90. Although the dividend is now higher, the yield is only 2.6%, which is below the industry average.

View our latest analysis for Ten Ren Tea

Ten Ren Tea's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Ten Ren Tea's dividend made up quite a large proportion of earnings but only 36% of free cash flows. This leaves plenty of cash for reinvestment into the business.

If the company can't turn things around, EPS could fall by 11.5% over the next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 85% in the next 12 months which is on the higher end of the range we would say is sustainable.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was NT$2.30 in 2014, and the most recent fiscal year payment was NT$0.90. The dividend has shrunk at around 9.0% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Over the past five years, it looks as though Ten Ren Tea's EPS has declined at around 12% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Our Thoughts On Ten Ren Tea's Dividend

Overall, we always like to see the dividend being raised, but we don't think Ten Ren Tea will make a great income stock. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We don't think Ten Ren Tea 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. For example, we've identified 3 warning signs for Ten Ren Tea (1 shouldn't be ignored!) 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.

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