Stock Analysis

Should You Buy TerraVest Industries Inc. (TSE:TVK) For Its Upcoming Dividend?

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TSX:TVK
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TerraVest Industries Inc. (TSE:TVK) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 30th of December in order to be eligible for this dividend, which will be paid on the 11th of January.

TerraVest Industries's upcoming dividend is CA$0.10 a share, following on from the last 12 months, when the company distributed a total of CA$0.40 per share to shareholders. Based on the last year's worth of payments, TerraVest Industries has a trailing yield of 2.5% on the current stock price of CA$16.19. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether TerraVest Industries has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for TerraVest Industries

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. TerraVest Industries paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether TerraVest Industries generated enough free cash flow to afford its dividend. It paid out 14% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that TerraVest 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 how much of its profit TerraVest Industries paid out over the last 12 months.

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TSX:TVK Historic Dividend December 25th 2020

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, TerraVest Industries's earnings per share have been growing at 12% a year for the past 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.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TerraVest Industries has delivered 2.8% dividend growth per year on average over the past eight years. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

Final Takeaway

Should investors buy TerraVest Industries for the upcoming dividend? TerraVest 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. It's a promising combination that should mark this company worthy of closer attention.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 4 warning signs for TerraVest Industries that you should be aware of before investing in their shares.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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