TE Connectivity's (NYSE:TEL) Shareholders Will Receive A Bigger Dividend Than Last Year

TE Connectivity Ltd. (NYSE:TEL) has announced that it will be increasing its dividend from last year's comparable payment on the 7th of June to $0.65. This will take the annual payment to 1.8% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for TE Connectivity

TE Connectivity's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. However, TE Connectivity's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

EPS is set to fall by 13.3% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 28%, which is comfortable for the company to continue in the future.

TE Connectivity Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $1.00 in 2014, and the most recent fiscal year payment was $2.60. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

TE Connectivity May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 4.4% per year. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

We Really Like TE Connectivity's Dividend

Overall, a dividend increase is always good, and we think that TE Connectivity is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, TE Connectivity has 2 warning signs (and 1 which is potentially serious) 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.