Tharisa's (JSE:THA) Shareholders Will Receive A Smaller Dividend Than Last Year

Tharisa plc (JSE:THA) has announced it will be reducing its dividend payable on the 29th of June to R0.47. This means that the annual payment is 4.7% of the current stock price, which is lower than what the rest of the industry is paying.

See our latest analysis for Tharisa

Tharisa Is Paying Out More Than It Is Earning

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Tharisa's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.

The next 12 months is set to see EPS grow by 8.1%. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.

Tharisa's Dividend Has Lacked Consistency

The track record isn't the longest, but we are already seeing a bit of instability in the payments. Since 2018, the dividend has gone from US$0.05 to US$0.10. This means that it has been growing its distributions at 19% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Looks Likely To Grow

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. We are encouraged to see that Tharisa has grown earnings per share at 44% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

The company has also been raising capital by issuing stock equal to 10% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

Tharisa Looks Like A Great Dividend Stock

Overall, we think that Tharisa could be a great option for a dividend investment, although we would have preferred if the dividend wasn't cut this year. The cut will allow the company to continue paying out the dividend without putting the balance sheet under pressure, which means that it could remain sustainable for longer. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 3 warning signs for Tharisa that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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