The board of Ternium S.A. (NYSE:TX) has announced that it will pay a dividend of $1.80 per share on the 14th of May. The yield is still above the industry average at 10.0%.

Our free stock report includes 1 warning sign investors should be aware of before investing in Ternium. Read for free now.

Ternium's Projections Indicate Future Payments May Be Unsustainable

Estimates Indicate Ternium's Could Struggle to Maintain Dividend Payments In The Future

Ternium's Future Dividends May Potentially Be At Risk

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Ternium isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. These payout levels would generally be quite difficult to keep up.

EPS is forecast to rise very quickly over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 728%, which is unsustainable.

View our latest analysis for Ternium

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2015, the annual payment back then was $0.75, compared to the most recent full-year payment of $2.70. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Ternium has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Ternium's EPS has fallen by approximately 12% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Ternium's Dividend Doesn't Look Great

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Ternium that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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