Stock Analysis

TeleMasters Holdings (JSE:TLM) Has Re-Affirmed Its Dividend Of R0.016

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The board of TeleMasters Holdings Limited (JSE:TLM) has announced that it will pay a dividend on the 25th of October, with investors receiving R0.016 per share. This means the dividend yield will be fairly typical at 5.1%.

View our latest analysis for TeleMasters Holdings

TeleMasters Holdings' Distributions May Be Difficult To Sustain

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. TeleMasters Holdings is unprofitable despite paying a dividend, and it is paying out 108% of its free cash flow. These payout levels would generally be quite difficult to keep up.

Over the next year, EPS might fall by 27.8% based on recent performance. This means the company won't be turning a profit, which could place managers in the tough spot of having to choose between suspending the dividend or putting more pressure on the balance sheet.

JSE:TLM Historic Dividend October 3rd 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from R0.14 in 2011 to the most recent annual payment of R0.064. The dividend has shrunk at around 7.5% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. TeleMasters Holdings' earnings per share has shrunk at 28% a year over the past five years. 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.

We're Not Big Fans Of TeleMasters Holdings' Dividend

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for TeleMasters Holdings (2 are a bit concerning!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

Valuation is complex, but we're helping make it simple.

Find out whether TeleMasters Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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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