TT Electronics (LON:TTG) Will Pay A Larger Dividend Than Last Year At £0.0215
The board of TT Electronics plc (LON:TTG) has announced that it will be increasing its dividend by 7.5% on the 12th of October to £0.0215, up from last year's comparable payment of £0.02. This will take the dividend yield to an attractive 3.9%, providing a nice boost to shareholder returns.
See our latest analysis for TT Electronics
TT Electronics Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. While TT Electronics is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.
Earnings per share is forecast to rise exponentially over the next year. If recent patterns in the dividend continues, we would start to get a bit worried, with the payout ratio possibly reaching 111%.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2013, the annual payment back then was £0.05, compared to the most recent full-year payment of £0.063. This implies that the company grew its distributions at a yearly rate of about 2.3% 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. TT Electronics' earnings per share has shrunk at 43% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
TT Electronics' Dividend Doesn't Look Sustainable
Overall, we always like to see the dividend being raised, but we don't think TT Electronics will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think TT Electronics is a great stock to add to your portfolio if income is your focus.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 2 warning signs for TT Electronics (of which 1 is potentially serious!) you should know about. Is TT Electronics not quite the opportunity you were looking for? Why not check out our selection of top 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.
