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

Tredegar Corporation (NYSE:TG) will pay a dividend of US$0.12 on the 1st of July. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Tredegar

Tredegar's Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Tredegar's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 24.9% if recent trends continue. If the dividend continues on this path, the payout ratio could be 20% by next year, which we think can be pretty sustainable going forward.

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. Since 2012, the dividend has gone from US$0.18 to US$0.48. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see Tredegar has been growing its earnings per share at 25% a year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Our Thoughts On Tredegar's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Tredegar is earning enough to cover the payments, the cash flows are lacking. We don't think Tredegar is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Tredegar you should be aware of, and 3 of them don't sit too well with us. Is Tredegar not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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