TFI International Inc. (TSE:TFII) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 30th of March will not receive the dividend, which will be paid on the 15th of April.
TFI International's next dividend payment will be CA$0.26 per share. Last year, in total, the company distributed CA$1.04 to shareholders. Last year's total dividend payments show that TFI International has a trailing yield of 3.6% on the current share price of CA$29.11. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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. That's why it's good to see TFI International paying out a modest 25% of its earnings. A useful secondary check can be to evaluate whether TFI International generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that TFI International'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?
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see TFI International has grown its earnings rapidly, up 27% a year for the past five years. TFI International is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, ten years ago, TFI International has lifted its dividend by approximately 10% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Should investors buy TFI International for the upcoming dividend? 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. TFI International looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
In light of that, while TFI International has an appealing dividend, it's worth knowing the risks involved with this stock. For example - TFI International has 2 warning signs we think you should be aware of.
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.
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