Readers hoping to buy TD Ameritrade Holding Corporation (NASDAQ:AMTD) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 5th of August to receive the dividend, which will be paid on the 20th of August.
TD Ameritrade Holding's next dividend payment will be US$0.30 per share, on the back of last year when the company paid a total of US$1.20 to shareholders. Last year's total dividend payments show that TD Ameritrade Holding has a trailing yield of 2.3% on the current share price of $51.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately TD Ameritrade Holding's payout ratio is modest, at just 29% of profit.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see TD Ameritrade Holding has grown its earnings rapidly, up 25% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. TD Ameritrade Holding has delivered an average of 22% per year annual increase in its dividend, based on the past 9 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
Is TD Ameritrade Holding an attractive dividend stock, or better left on the shelf? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. TD Ameritrade Holding ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
Wondering what the future holds for TD Ameritrade Holding? See what the 15 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.