Toro (NYSE:TTC) Is Increasing Its Dividend To $0.36

The board of The Toro Company (NYSE:TTC) has announced that the dividend on 11th of January will be increased to $0.36, which will be 5.9% higher than last year's payment of $0.34 which covered the same period. Based on this payment, the dividend yield for the company will be 1.6%, which is fairly typical for the industry.

Check out our latest analysis for Toro

Toro's Earnings Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. Prior to this announcement, Toro's dividend was only 37% of earnings, however it was paying out 114% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

The next year is set to see EPS grow by 39.9%. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

Toro Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.28 in 2013, and the most recent fiscal year payment was $1.36. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Toro has been growing its earnings per share at 7.8% a year over the past five years. Toro definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

Our Thoughts On Toro's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Toro's payments are rock solid. While Toro is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Toro that investors should know about before committing capital to this stock. Is Toro not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.