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Is It Smart To Buy The TJX Companies, Inc. (NYSE:TJX) Before It Goes Ex-Dividend?

Simply Wall St

The TJX Companies, Inc. (NYSE:TJX) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 12th of February in order to be eligible for this dividend, which will be paid on the 5th of March.

TJX Companies's next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.92 to shareholders. Looking at the last 12 months of distributions, TJX Companies has a trailing yield of approximately 1.5% on its current stock price of $61.82. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether TJX Companies can afford its dividend, and if the dividend could grow.

Check out our latest analysis for TJX Companies

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 TJX Companies's payout ratio is modest, at just 34% of profit. 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. It distributed 46% of its free cash flow as dividends, a comfortable payout level for most companies.

It's positive to see that TJX Companies'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:TJX Historical Dividend Yield, February 7th 2020

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 earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see TJX Companies's earnings per share have risen 11% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings 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. In the last ten years, TJX Companies has lifted its dividend by approximately 23% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.

Final Takeaway

From a dividend perspective, should investors buy or avoid TJX Companies? TJX Companies 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.

Wondering what the future holds for TJX Companies? See what the 28 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

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. Thank you for reading.