For investors looking for a dependable source of passive income, a methodical screening process is needed to distinguish truly lasting dividend payers from hazardous high-yield situations. A frequent method uses filters for companies that provide a good dividend and also have the fundamental financial capacity to keep and increase those payments. This frequently involves searching for stocks with high ratings for dividend quality, along with acceptable ratings in profitability and financial soundness. These filters aid in finding businesses that produce enough earnings, handle their debts carefully, and focus on giving money to shareholders, a mix that can result in lasting income and protection of capital over many years.
TE CONNECTIVITY PLC (NYSE:TEL), a worldwide top company in connectivity and sensor solutions, appears as a candidate worth more examination through this view. The company's activities, covering transportation, industrial automation, data centers, and medical technology, create a varied income source. For dividend-focused investors, TEL displays an interesting profile that matches a quality-focused income plan.
A Firm Dividend Base
The center of any dividend investment case is the lasting nature and growth path of the payment. TE Connectivity's dividend profile displays multiple good signs that support its high rating.
- Dependable History: The company has given a dividend for at least ten years and has not lowered it in that time. This record of consistency is a key signal of management's focus on shareholder returns.
- Lasting Growth: The dividend has increased at an average yearly pace of about 7.55% over the last five years. Significantly, this growth is backed by fundamental earnings growth, indicating it is not paid for by borrowing or shaky methods.
- Cautious Payout Ratio: A crucial measure for lasting value, the payout ratio, the part of earnings given as dividends, is at a manageable 39.87%. This keeps a large amount of profits to be put back into the business for future expansion or to protect against economic slowdowns, lowering the chance of a dividend reduction.
While the present yield of 1.36% is moderate next to some high-yield stocks, it is useful to see this number in context. It is much higher than the industry norm and is supported by the quality and growth elements noted before, which are frequently missing in companies giving seemingly high yields.
Supported by Profitability and Financial Soundness
A lasting dividend needs a profitable business and a firm balance sheet. This is where the screening filters for acceptable profitability and soundness show their value, and TE Connectivity performs well on both counts.
Profitability is a clear positive. The company receives a high rating here, fueled by very good returns on capital.
- Return on Invested Capital (ROIC) of 13.94% is much better than the company's cost of capital, showing it is producing real shareholder value.
- Firm profit and operating margins do better than most of its competitors in the electronic components industry.
- This steady profitability supplies the necessary cash flow source that pays for both business reinvestment and shareholder dividends.
Financial Soundness is firm, giving stability. The company's solvency measures are especially good.
- It has a low debt-to-free-cash-flow ratio of 1.82, meaning it could pay off all its debt with under two years of cash flow, a signal of high financial adaptability.
- The Altman-Z score, a gauge of bankruptcy risk, is in a good range.
- While some liquidity ratios (like current and quick ratios) are below industry averages, this is considered alongside the company's firm overall solvency and cash-generating business model, which lessens short-term liquidity worries.
Valuation and Growth Setting
For income investors, valuation is important because paying too much for a stock can cancel the gains from its dividend. TE Connectivity's valuation seems fair within its market setting. Its Price-to-Earnings ratio is below that of the wider industry, and its Price-to-Free-Cash-Flow ratio is less expensive than more than 80% of its peers. When growth is included through the PEG ratio, the valuation seems even more interesting. The company is projected to achieve firm mid-single-digit revenue growth and double-digit earnings per share growth in the near future, giving a possible boost for both the stock price and future dividend raises.
A Candidate for Quality Dividend Portfolios
In conclusion, TE Connectivity shows the kind of company a methodical dividend screen tries to find. It joins a dependable and increasing dividend, backed by a cautious payout ratio, with the basic positives of high profitability and good financial soundness. This three-part combination tackles the main dangers in dividend investing: the danger of a cut, the danger of flat income, and the danger of business decline. While the yield may not be the greatest available, the total quality and lasting nature of the return profile make it a noteworthy candidate for investors focused on creating a durable, income-producing portfolio for the long term.
For investors wanting to examine other companies that meet similar filters of high dividend quality, firm profitability, and good financial soundness, you can see the complete list of outcomes from the "Best Dividend" screen here.
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 historical performance, which is not a guarantee of future results. Investors should conduct their own research and consider their individual financial circumstances before making any investment decisions.
