Stock Analysis

TORM plc (CPH:TRMD A) Looks Interesting, And It's About To Pay A Dividend

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CPSE:TRMD A
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that TORM plc (CPH:TRMD A) is about to go ex-dividend in just four 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase TORM's shares on or after the 24th of March will not receive the dividend, which will be paid on the 5th of April.

The company's next dividend payment will be US$2.59 per share, on the back of last year when the company paid a total of US$2.92 to shareholders. Calculating the last year's worth of payments shows that TORM has a trailing yield of 8.5% on the current share price of DKK240.8. 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! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for TORM

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. TORM paid out 67% of its earnings to investors last year, a normal payout level for most businesses. 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. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that TORM'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 the company's payout ratio, plus analyst estimates of its future dividends.

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CPSE:TRMD A Historic Dividend March 19th 2023

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. It's encouraging to see TORM has grown its earnings rapidly, up 182% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, seven years ago, TORM has lifted its dividend by approximately 20% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

To Sum It Up

From a dividend perspective, should investors buy or avoid TORM? TORM's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about TORM, and we would prioritise taking a closer look at it.

While it's tempting to invest in TORM for the dividends alone, you should always be mindful of the risks involved. Be aware that TORM is showing 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether TORM is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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