Here's What We Like About Tootsie Roll Industries, Inc. (NYSE:TR)'s Upcoming Dividend

Tootsie Roll Industries, Inc. (NYSE:TR) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 2nd of March will not receive the dividend, which will be paid on the 27th of March.

Tootsie Roll Industries's next dividend payment will be US$0.09 per share, and in the last 12 months, the company paid a total of US$0.36 per share. Based on the last year's worth of payments, Tootsie Roll Industries has a trailing yield of 1.0% on the current stock price of $34.49. 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 investigate whether Tootsie Roll Industries can afford its dividend, and if the dividend could grow.

See our latest analysis for Tootsie Roll Industries

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Tootsie Roll Industries paying out a modest 38% of its earnings. A useful secondary check can be to evaluate whether Tootsie Roll Industries generated enough free cash flow to afford its dividend. It distributed 33% of its free cash flow as dividends, a comfortable payout level for most companies.

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 how much of its profit Tootsie Roll Industries 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 fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Tootsie Roll Industries earnings per share are up 2.2% per annum over the last five years. Recent earnings growth has been limited. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, Tootsie Roll Industries has lifted its dividend by approximately 4.5% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Tootsie Roll Industries? Earnings per share have been growing moderately, and Tootsie Roll Industries is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Tootsie Roll Industries is halfway there. Tootsie Roll Industries looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

Want to learn more about Tootsie Roll Industries? Here's a visualisation of its historical rate of revenue and earnings growth.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

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