Here's Why We're Wary Of Buying TPG RE Finance Trust, Inc.'s (NYSE:TRTX) For Its Upcoming Dividend

TPG RE Finance Trust, Inc. (NYSE:TRTX) is about to trade ex-dividend in the next 2 days. You can purchase shares before the 26th of September in order to receive the dividend, which the company will pay on the 25th of October.

TPG RE Finance Trust's next dividend payment will be US$0.4 per share, and in the last 12 months, the company paid a total of US$1.7 per share. Looking at the last 12 months of distributions, TPG RE Finance Trust has a trailing yield of approximately 8.4% on its current stock price of $20.42. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for TPG RE Finance Trust

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year, TPG RE Finance Trust paid out 102% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about TPG RE Finance Trust's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

We'd also point out that TPG RE Finance Trust issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last two years, TPG RE Finance Trust has lifted its dividend by approximately 14% a year on average.

The Bottom Line

Has TPG RE Finance Trust got what it takes to maintain its dividend payments? Earnings per share have not grown at all and TPG RE Finance Trust is paying out an uncomfortably high percentage of its profit as dividends. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Curious what other investors think of TPG RE Finance Trust? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.