Tredegar (NYSE:TG) Will Pay A Dividend Of US$0.12

Tredegar Corporation's (NYSE:TG) investors are due to receive a payment of US$0.12 per share on 1st of October. This means the annual payment is 49% of the current stock price, which is above the average for the industry.

See our latest analysis for Tredegar

Tredegar Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before this announcement, Tredegar was paying out 81% of earnings, but a comparatively small 30% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

EPS is set to fall by 6.5% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 1,209%, which could put the dividend under pressure if earnings don't start to improve.

Tredegar Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was US$0.16 in 2011, and the most recent fiscal year payment was US$0.48. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. In the last five years, Tredegar's earnings per share has shrunk at approximately 6.5% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

Our Thoughts On Tredegar's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Tredegar's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Tredegar that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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