Is It Smart To Buy The Toro Company (NYSE:TTC) Before It Goes Ex-Dividend?

The Toro Company (NYSE:TTC) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 1st of April in order to be eligible for this dividend, which will be paid on the 20th of April.

Toro's next dividend payment will be US$0.26 per share, on the back of last year when the company paid a total of US$1.05 to shareholders. Last year's total dividend payments show that Toro has a trailing yield of 1.0% on the current share price of $104.34. 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 check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Toro

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. Fortunately Toro's payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Toro generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last 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.

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

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Toro's earnings per share have been growing at 14% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Toro has increased its dividend at approximately 19% 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.

Final Takeaway

Is Toro an attractive dividend stock, or better left on the shelf? Toro has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Toro, and we would prioritise taking a closer look at it.

In light of that, while Toro has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 2 warning signs for Toro that we recommend you consider before investing in the business.

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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