Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TFI International Inc. (TSE:TFII) is about to trade ex-dividend in the next 2 days. You will need to purchase shares before the 29th of September to receive the dividend, which will be paid on the 15th of October.
TFI International's upcoming dividend is CA$0.26 a share, following on from the last 12 months, when the company distributed a total of CA$1.04 per share to shareholders. Looking at the last 12 months of distributions, TFI International has a trailing yield of approximately 1.9% on its current stock price of CA$54.78. 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 investigate whether TFI International can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. TFI International paid out a comfortable 28% of its profit last year. A useful secondary check can be to evaluate whether TFI International generated enough free cash flow to afford its dividend. The good news is it paid out just 17% of its free cash flow in the last 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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see TFI International has grown its earnings rapidly, up 25% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TFI International has delivered an average of 10% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Has TFI International got what it takes to maintain its dividend payments? TFI International has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.
So while TFI International looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 2 warning signs for TFI International that we recommend you consider before investing in the business.
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.
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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