Don't Buy Trinity Industries, Inc. (NYSE:TRN) For Its Next Dividend Without Doing These Checks

By
Simply Wall St
Published
January 09, 2022
NYSE:TRN
Source: Shutterstock

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 Trinity Industries, Inc. (NYSE:TRN) is about to go ex-dividend in just 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Trinity Industries investors that purchase the stock on or after the 13th of January will not receive the dividend, which will be paid on the 31st of January.

The company's next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.84 to shareholders. Calculating the last year's worth of payments shows that Trinity Industries has a trailing yield of 3.0% on the current share price of $31.17. If you buy this business for its dividend, you should have an idea of whether Trinity Industries's dividend is reliable and sustainable. So we need to investigate whether Trinity Industries can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Trinity Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Trinity Industries's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Trinity Industries paid out more free cash flow than it generated - 178%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
NYSE:TRN Historic Dividend January 9th 2022

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Trinity Industries was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

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, 10 years ago, Trinity Industries has lifted its dividend by approximately 19% a year on average.

Remember, you can always get a snapshot of Trinity Industries's financial health, by checking our visualisation of its financial health, here.

To Sum It Up

Is Trinity Industries an attractive dividend stock, or better left on the shelf? It's hard to get used to Trinity Industries paying a dividend despite reporting a loss over the past year. Worse, the dividend was not well covered by cash flow. It's not the most attractive proposition from a dividend perspective, and we'd probably give this one a miss for now.

With that being said, if you're still considering Trinity Industries as an investment, you'll find it beneficial to know what risks this stock is facing. For example, Trinity Industries has 2 warning signs (and 1 which can't be ignored) we think you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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