Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Titanium Transportation Group Inc. (CVE:TTR) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Titanium Transportation Group's shares before the 29th of November in order to receive the dividend, which the company will pay on the 15th of December.
The company's next dividend payment will be CA$0.02 per share, on the back of last year when the company paid a total of CA$0.08 to shareholders. Looking at the last 12 months of distributions, Titanium Transportation Group has a trailing yield of approximately 2.7% on its current stock price of CA$2.97. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Titanium Transportation Group can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Titanium Transportation Group paid out 56% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Titanium Transportation Group generated enough free cash flow to afford its dividend. Fortunately, it paid out only 34% of its free cash flow in the past year.
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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Titanium Transportation Group has grown its earnings rapidly, up 27% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Titanium Transportation Group could have strong prospects for future increases to the dividend.
Titanium Transportation Group also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Unfortunately Titanium Transportation Group has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
The Bottom Line
Should investors buy Titanium Transportation Group for the upcoming dividend? We like Titanium Transportation Group's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Titanium Transportation Group is facing. We've identified 6 warning signs with Titanium Transportation Group (at least 1 which is potentially serious), and understanding these should be part of your investment process.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.