Toll Brothers' (NYSE:TOL) Dividend Will Be Increased To $0.25

The board of Toll Brothers, Inc. (NYSE:TOL) has announced that the dividend on 25th of April will be increased to $0.25, which will be 8.7% higher than last year's payment of $0.23 which covered the same period. Despite this raise, the dividend yield of 0.9% is only a modest boost to shareholder returns.

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Toll Brothers' Projected Earnings Seem Likely To Cover Future Distributions

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Toll Brothers was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 20.7% over the next year. If the dividend continues on this path, the payout ratio could be 6.0% by next year, which we think can be pretty sustainable going forward.

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Toll Brothers Is Still Building Its Track Record

It is great to see that Toll Brothers has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of $0.32 in 2017 to the most recent total annual payment of $0.92. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Toll Brothers has been growing its earnings per share at 32% a year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Toll Brothers Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Toll Brothers that investors should take into consideration. Is Toll Brothers not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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