Tootsie Roll Industries (NYSE:TR) Could Be A Buy For Its Upcoming Dividend

It looks like Tootsie Roll Industries, Inc. (NYSE:TR) is about to go ex-dividend in the next 3 days. You can purchase shares before the 4th of March in order to receive the dividend, which the company will pay on the 26th of March.

Tootsie Roll Industries's next dividend payment will be US$0.18 per share, on the back of last year when the company paid a total of US$0.36 to shareholders. Based on the last year's worth of payments, Tootsie Roll Industries has a trailing yield of 1.2% on the current stock price of $30.81. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Tootsie Roll Industries

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Tootsie Roll Industries paid out a comfortable 40% of its profit last year. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Fortunately, it paid out only 34% of its free cash flow in the past 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 how much of its profit Tootsie Roll Industries paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're not enthused to see that Tootsie Roll Industries's earnings per share have remained effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Tootsie Roll Industries has increased its dividend at approximately 4.5% a year on average.

Final Takeaway

Has Tootsie Roll Industries got what it takes to maintain its dividend payments? Earnings per share have been flat over this time, but we're intrigued to see that Tootsie Roll Industries is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. Generally we like to see both low payout ratios and strong earnings per share growth, but Tootsie Roll Industries is halfway there. Overall we think this is an attractive combination and worthy of further research.

In light of that, while Tootsie Roll Industries has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Tootsie Roll Industries has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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.

When trading Tootsie Roll Industries or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.