TE Connectivity PLC (NYSE:TEL): A Quality Dividend Stock for Sustainable Income

For investors looking for a dependable source of passive income, a methodical screening process is needed to steer clear of high-yield dangers. A good method requires looking past the advertised dividend yield to assess the fundamental condition and earnings power of a company. A stock with a reasonable yield supported by solid finances, a record of steady payments, and potential for expansion is frequently a more lasting choice than one with an unmaintainable high yield. This method emphasizes quality and longevity, seeking to create a portfolio that can provide income across different market periods.

TE Connectivity PLC (NYSE:TEL) appears as a candidate worth reviewing with this view. The worldwide supplier of connectivity and sensor solutions, which works with sectors including automotive and data centers, has been found by a screen that selects for stocks with a high ChartMill Dividend Rating while also needing adequate scores in earnings power and financial condition.

Examining the Dividend Details

The center of the investment case for TEL from an income viewpoint depends on its solid and dependable dividend traits, which gave it a ChartMill Dividend Rating of 7. This rating combines a number of important measures that dividend investors should examine.

• Yield and Growth: TEL provides a dividend yield of 1.26%. This may not be the greatest figure on the market, but it is backed by a good history. The company has raised its dividend for at least 10 straight years without a cut, showing management's dedication to giving capital back to shareholders. Also, the dividend has risen at an average yearly rate of 7.56% over the last five years, a speed that exceeds inflation and adds notably to total return over the long term.
• Longevity: The longevity of a dividend is critical. TEL's payout ratio is 43.59% of its earnings. This figure is seen as comfortable, it keeps a large part of profits to be put back into the business for future expansion while still giving a reward to shareholders. Importantly, the company's earnings are rising quicker than its dividend, which implies the present payout level is not only maintainable but could rise more.

This mix of a rising, well-supported dividend from a company with a ten-year history of increases fits well with a quality dividend investing plan. It moves the emphasis from seeking the greatest immediate yield to securing a rising income flow from a financially stable business.

The Base: Earnings Power and Financial Condition

A lasting dividend cannot be present without a profitable and financially strong company. This is why the screening rules included minimum levels for earnings power and condition, to make sure the dividend is not being paid from weak foundations. TEL scores well here, with a Profitability Rating of 8 and a Health Rating of 7.

The company's earnings power measures are a specific area of strength. It has a notable Return on Invested Capital (ROIC) of 13.39%, doing better than over 91% of similar companies in the Electronic Equipment, Instruments & Components industry. A high ROIC shows TEL is very effective at creating profits from the capital it uses, a sign of a well-managed business. This operational quality is also seen in a good Operating Margin of 19.60%.

From a financial condition angle, TEL shows a firm balance sheet. Its Altman-Z score of 5.34 indicates a very small short-term chance of financial trouble. The company also holds a sensible Debt-to-Equity ratio of 0.38. While some liquidity measures like the Current and Quick ratios are middling compared to its industry, this is balanced by the company's very good solvency and high earnings power, which offer other ways to meet responsibilities. For a dividend investor, this overall financial steadiness is important, as it indicates the company can keep its payout even in economic slowdowns.

Valuation and Expansion Background

While the main focus for a dividend investor is income longevity, valuation and expansion possibilities give useful background. TEL is trading at a Price-to-Earnings (P/E) ratio about equal to the wider S&P 500. Its valuation seems more fair when thinking about its expansion outlook, analysts project earnings to rise by over 15% in the next few years. This projected expansion helps support the present valuation and, more significantly for dividend investors, backs the argument for ongoing dividend rises ahead.

A Complete Fundamental Review of TEL is accessible here.

For investors wanting to use this approach to find other possible candidates, the "Best Dividend Stocks" screen that identified TE Connectivity can be a useful beginning point. You can review the present screen results and change the filters to your own standards here.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The analysis is based on data provided and reflects the author's interpretation. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.