Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Toromont Industries Ltd. (TSE:TIH) is about to go ex-dividend in just 2 days. You will need to purchase shares before the 4th of September to receive the dividend, which will be paid on the 2nd of October.
Toromont Industries’s next dividend payment will be CA$0.31 per share. Last year, in total, the company distributed CA$1.24 to shareholders. Looking at the last 12 months of distributions, Toromont Industries has a trailing yield of approximately 1.7% on its current stock price of CA$73.81. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Toromont Industries can afford its dividend, and if the dividend could grow.
View our latest analysis for Toromont Industries
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. That’s why it’s good to see Toromont Industries paying out a modest 37% of its earnings. A useful secondary check can be to evaluate whether Toromont Industries generated enough free cash flow to afford its dividend. It distributed 26% of its free cash flow as dividends, a comfortable payout level for most companies.
It’s positive to see that Toromont Industries’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we’re glad to see Toromont Industries’s earnings per share have risen 13% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Toromont Industries has lifted its dividend by approximately 7.5% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Is Toromont Industries worth buying for its dividend? Toromont Industries has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
In light of that, while Toromont Industries has an appealing dividend, it’s worth knowing the risks involved with this stock. For example – Toromont Industries has 2 warning signs we think you should be aware of.
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.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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