There's A Lot To Like About Thomson Reuters' (TSE:TRI) Upcoming US$0.54 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Thomson Reuters Corporation (TSE:TRI) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Thomson Reuters' shares on or after the 15th of August will not receive the dividend, which will be paid on the 10th of September.

The company's upcoming dividend is US$0.54 a share, following on from the last 12 months, when the company distributed a total of US$2.16 per share to shareholders. Looking at the last 12 months of distributions, Thomson Reuters has a trailing yield of approximately 1.3% on its current stock price of CA$221.72. 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.

See our latest analysis for Thomson Reuters

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Fortunately Thomson Reuters's payout ratio is modest, at just 40% of profit. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 47% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

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

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Thomson Reuters's earnings have been skyrocketing, up 116% per annum for the past five years. Thomson Reuters is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Thomson Reuters has lifted its dividend by approximately 3.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Thomson Reuters is keeping back more of its profits to grow the business.

The Bottom Line

Is Thomson Reuters worth buying for its dividend? Thomson Reuters has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Thomson Reuters looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

On that note, you'll want to research what risks Thomson Reuters is facing. Our analysis shows 1 warning sign for Thomson Reuters and you should be aware of it before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.