Investors who want to cash in on TT Electronics plc's (LON:TTG) upcoming dividend of UK£0.045 per share have only 3 days left to buy the shares before its ex-dividend date, 25 April 2019, in time for dividends payable on the 17 May 2019. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let's take a look at TT Electronics's most recent financial data to examine its dividend characteristics in more detail.
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does TT Electronics fit our criteria?
TT Electronics has a trailing twelve-month payout ratio of 81%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect TTG's payout to fall to 40% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.2%. However, EPS should increase to £0.13, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. The reality is that it is too early to consider TT Electronics as a dividend investment. It has only been consistently paying dividends for 9 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, TT Electronics has a yield of 2.6%, which is high for Electronic stocks but still below the market's top dividend payers.
Taking all the above into account, TT Electronics is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. Below, I've compiled three pertinent aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for TTG’s future growth? Take a look at our free research report of analyst consensus for TTG’s outlook.
- Valuation: What is TTG worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TTG is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.