The advice of TeleMasters Holdings Limited (JSE: TLM) has announced that it will pay a dividend of Rand 0.016 per share on October 25. This payment means that the dividend yield will be 4.3%, which is close to the industry average.
Check out our latest review for TeleMasters Holdings
TeleMasters Holdings may struggle to maintain dividend
We’re not overly impressed with dividend yields unless they can be sustained over time. The company pays a large portion of its cash flow, even if it does not make a profit. These payout levels would generally be quite difficult to maintain.
Recently, EPS fell 40.3%, which could continue next year. This means that the company will not make a profit, which could put managers in the difficult position of having to choose between suspending the dividend or putting more pressure on the balance sheet.
While the company has been paying a dividend for a long time, it has reduced the dividend at least once in the past 10 years. The first annual payment in the last 10 years was R0.14 in 2011, and the most recent year payment was R0.064. When you do the math, that’s about a 7.5% drop per year. Falling dividends are usually not what we are looking for, as they may indicate that the business is facing some challenges.
The dividend has limited growth potential
Since dividend payments have shrunk like a glacier in a warming world, we need to check if there are any bright spots on the horizon. TeleMasters Holdings earnings per share have declined 40% per year over the past five years. Such rapid declines certainly have the potential to restrict dividend payments if the trend continues in the future.
TeleMasters Holdings dividend doesn’t look good
In summary, while it is good to see that the dividend has not been reduced, we believe that at current levels the payout is not particularly sustainable. The company’s profits are not high enough to make such large distributions, nor are they supported by strong growth or consistency. Overall, the dividend is not reliable enough to make it a good income security.
Investors generally tend to favor companies with a consistent and stable dividend policy over those that operate irregularly. Meanwhile, despite the importance of dividend payments, they aren’t the only factors our readers should be aware of when valuing a business. To this end, TeleMasters Holdings has 3 warning signs (and 2 which are a bit rude) we think you should be aware of. If you are a dividend investor, you can also view our curated list of high performing dividend stocks.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.
Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.