Trinseo (NYSE:TSE) Is Paying Out A Dividend Of $0.32

Trinseo PLC (NYSE:TSE) will pay a dividend of $0.32 on the 20th of October. This makes the dividend yield 6.2%, which will augment investor returns quite nicely.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Trinseo's stock price has reduced by 49% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for Trinseo

Trinseo's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, Trinseo's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Looking forward, EPS could fall by 11.8% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 38%, which is definitely feasible to continue.

Trinseo's Dividend Has Lacked Consistency

Trinseo has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from an annual total of $1.20 in 2016 to the most recent total annual payment of $1.28. This implies that the company grew its distributions at a yearly rate of about 1.1% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Has Limited 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. Over the past five years, it looks as though Trinseo's EPS has declined at around 12% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Trinseo's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Trinseo's payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 5 warning signs for Trinseo (2 are a bit unpleasant!) 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.