Toromont Industries (TSE:TIH) Is Increasing Its Dividend To CA$0.43

Toromont Industries Ltd.'s (TSE:TIH) dividend will be increasing from last year's payment of the same period to CA$0.43 on 4th of April. Even though the dividend went up, the yield is still quite low at only 1.5%.

Check out our latest analysis for Toromont Industries

Toromont Industries' Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Prior to this announcement, Toromont Industries' dividend was only 28% of earnings, however it was paying out 96% of free cash flows. A cash payout ratio this high could put the dividend under pressure and force the company to reduce it in the future if it were to run into tough times.

Over the next year, EPS is forecast to expand by 2.6%. If the dividend continues on this path, the payout ratio could be 32% by next year, which we think can be pretty sustainable going forward.

Toromont Industries Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was CA$0.48 in 2013, and the most recent fiscal year payment was CA$1.72. This means that it has been growing its distributions at 14% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Toromont Industries has seen EPS rising for the last five years, at 20% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Toromont Industries' prospects of growing its dividend payments in the future.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Toromont Industries' payments are rock solid. While Toromont Industries is earning enough to cover the payments, the cash flows are lacking. We don't think Toromont Industries is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 9 analysts we track are forecasting for Toromont Industries for free with public analyst estimates for the company. Is Toromont Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.