Stock Analysis

TerraVest Industries (TSE:TVK) Is Due To Pay A Dividend Of CA$0.10

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TSX:TVK
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TerraVest Industries Inc.'s (TSE:TVK) investors are due to receive a payment of CA$0.10 per share on 11th of April. This payment means that the dividend yield will be 1.6%, which is around the industry average.

See our latest analysis for TerraVest Industries

TerraVest Industries' Earnings Easily Cover the Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Based on the last payment, TerraVest Industries was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Looking forward, earnings per share could rise by 41.3% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 14% by next year, which is in a pretty sustainable range.

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TSX:TVK Historic Dividend March 23rd 2022

TerraVest Industries' Dividend Has Lacked Consistency

Looking back, TerraVest Industries' dividend hasn't been particularly consistent. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2013, the first annual payment was CA$0.32, compared to the most recent full-year payment of CA$0.40. This works out to be a compound annual growth rate (CAGR) of approximately 2.5% a year over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see TerraVest Industries has been growing its earnings per share at 41% 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.

Our Thoughts On TerraVest Industries' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about TerraVest Industries' payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for TerraVest Industries that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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