Stock Analysis

TerraVest Industries (TSE:TVK) Has Announced A Dividend Of CA$0.10

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TSX:TVK
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TerraVest Industries Inc. (TSE:TVK) will pay a dividend of CA$0.10 on the 12th of October. This means the dividend yield will be fairly typical at 2.0%.

Check out our latest analysis for TerraVest Industries

TerraVest Industries' Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, TerraVest Industries was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

If the trend of the last few years continues, EPS will grow by 27.6% over the next 12 months. If the dividend continues on this path, the payout ratio could be 15% by next year, which we think can be pretty sustainable going forward.

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TSX:TVK Historic Dividend August 14th 2021

TerraVest Industries' Dividend Has Lacked Consistency

TerraVest Industries has been paying dividends for a while, but the track record isn't stellar. This makes us cautious about the consistency of the dividend over a full economic cycle. The dividend has gone from CA$0.32 in 2013 to the most recent annual payment of CA$0.40. This implies that the company grew its distributions at a yearly rate of about 2.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see TerraVest Industries has been growing its earnings per share at 28% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

TerraVest Industries Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think TerraVest Industries might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for TerraVest Industries that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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