Is It Worth Considering Tredegar Corporation (NYSE:TG) For Its Upcoming Dividend?

Readers hoping to buy Tredegar Corporation (NYSE:TG) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 11th of March, you won't be eligible to receive this dividend, when it is paid on the 1st of April.

Tredegar's next dividend payment will be US$0.12 per share. Last year, in total, the company distributed US$0.48 to shareholders. Calculating the last year's worth of payments shows that Tredegar has a trailing yield of 2.8% on the current share price of $17.14. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Tredegar can afford its dividend, and if the dividend could grow.

See our latest analysis for Tredegar

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. Tredegar reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Tredegar didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. What's good is that dividends were well covered by free cash flow, with the company paying out 23% of its cash flow last year.

Click here to see how much of its profit Tredegar paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Tredegar was unprofitable last year, but at least the general trend suggests its earnings have been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Tredegar has delivered 12% dividend growth per year on average over the past 10 years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Remember, you can always get a snapshot of Tredegar's financial health, by checking our visualisation of its financial health, here.

Final Takeaway

Has Tredegar got what it takes to maintain its dividend payments? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Tredegar's dividend merits.

While it's tempting to invest in Tredegar for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Tredegar and you should be aware of them before buying any shares.

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.

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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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