There are few income stocks out there that have reported dividend growth like Telecom Plus (LSE: TEP). Over the past six years the companys earnings per share have expanded by 40%, and over the same period, management has hiked the dividend payout by 61%, or around 8% per annum.
Thanks to the companys steady earnings and dividend growth, over the past five years the shares have produced an annual total return of 9.5% for investors. Over the past 10 years, the shares have generated a total return of 26% per annum.
And it looks as if the companys dividend growth is set to continue following the release of first-half figures today.
Dividend growth
After a robust first half, Telecom Plus managementnow believes thatannual adjusted profit before tax should come in slightly ahead of expectations for the full year.Adjusted pre-tax profit from continuing operations rose 6% to 25.7m, while reported pre-tax profit rose 7% to 19.1m.
Customer numbers have continued to grow organically, with5,265 customers added in the first half to push the total up to 613,067. The company has benefitted from its diversified offering and impact of customers taking up more services.
On the back of these figures, thedividend for the half was raised 4.3% to 24p from 23p.
City analysts are expecting the companys organic growth to continue for the next few years, with earnings per share growth of 5% predicted for this year, and 10% for 2018. I believe that this earnings rise should underpin further dividend increases, indicating that not only does the companys current 4.1% dividend yield look attractive in the present environment, but it also looks sustainable and set to rise in the years ahead.
Recovery play
Telecom Pluss impressive total shareholder returns cannot be matched by peer TalkTalk (LSE: TALK). Following a hack attack that affected 157,000 customers last year, shares in TalkTalk have underperformed the FTSE 100 by 17% as management has struggled to rebuild customer and investor trust.
Hefty restructuring charges have held back the firms recovery, pushing it to report a 75mpre-tax loss for the six months to September 30, compared with a 30m profit a year earlier. A 31m charge for overhauling its mobile business, coupled with59m of exceptional charges for restructuring helped push the business from a profit to a loss.
To help rebuild the balance sheet, TalkTalks management has also slashed the dividend payout.The group is paying a half-year dividend of 2.5p a share, compared with 5.3p this time last year. Nonetheless, I believe that this is a sensible strategy, which should ensure that the payout remains manageable for the foreseeablefuture.
You see, historically the companys dividend payout per share has exceeded earnings per share, which is generally interpreted as a sign that the payout is unsustainable. Now however, analysts believe the payout will be covered 1.1 times by earnings per share next year.
These numbers give me confidence that the current dividend, equal to a yield of 4.9%, is here to stay.
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