Trans Polonia (WSE:TRN) Could Be A Buy For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Trans Polonia S.A. (WSE:TRN) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 11th of December will not receive the dividend, which will be paid on the 22nd of December.

Trans Polonia's upcoming dividend is zł0.09 a share, following on from the last 12 months, when the company distributed a total of zł0.09 per share to shareholders. Based on the last year's worth of payments, Trans Polonia stock has a trailing yield of around 3.2% on the current share price of PLN2.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Trans Polonia can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Trans Polonia

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Trans Polonia paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. 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.

Click here to see how much of its profit Trans Polonia paid out over the last 12 months.

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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Trans Polonia earnings per share are up 5.4% per annum over the last five years. Earnings per share have been increasing steadily and management is reinvesting almost all of the profits back into the business. This is an attractive combination, because when profits are reinvested effectively, growth can compound, with corresponding benefits for earnings and dividends in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Trans Polonia's dividend payments per share have declined at 9.1% per year on average over the past six years, which is uninspiring. Trans Polonia is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Has Trans Polonia got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Trans Polonia is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Trans Polonia is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.

While it's tempting to invest in Trans Polonia for the dividends alone, you should always be mindful of the risks involved. For example - Trans Polonia has 3 warning signs we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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