TerraVest Industries Inc. (TSE:TVK) stock is about to trade ex-dividend in two days. Ex-dividend means that investors that purchase the stock on or after the 29th of September will not receive this dividend, which will be paid on the 9th of October.
TerraVest Industries's next dividend payment will be CA$0.10 per share, on the back of last year when the company paid a total of CA$0.40 to shareholders. Last year's total dividend payments show that TerraVest Industries has a trailing yield of 2.7% on the current share price of CA$15. If you buy this business for its dividend, you should have an idea of whether TerraVest Industries's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. TerraVest Industries paid out a comfortable 33% 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. The good news is it paid out just 15% of its free cash flow in the last year.
It's positive to see that TerraVest Industries's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, TerraVest Industries's earnings per share have been growing at 16% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. TerraVest Industries has delivered an average of 2.8% per year annual increase in its dividend, based on the past eight years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because TerraVest Industries is keeping back more of its profits to grow the business.
Should investors buy TerraVest Industries for the upcoming dividend? We love that TerraVest Industries is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. There's a lot to like about TerraVest Industries, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks TerraVest Industries is facing. For example, we've found 3 warning signs for TerraVest Industries that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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