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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tempur Sealy International, Inc. (NYSE:TPX) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Tempur Sealy International investors that purchase the stock on or after the 11th of August will not receive the dividend, which will be paid on the 26th of August.
The company's next dividend payment will be US$0.09 per share. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are 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. Tempur Sealy International has a low and conservative payout ratio of just 5.3% of its income after tax. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 4.1% of its free cash flow in the last year.
It's positive to see that Tempur Sealy 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Tempur Sealy International's earnings have been skyrocketing, up 59% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, Tempur Sealy International looks like a promising growth company.
This is Tempur Sealy International's first year of paying a dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.
Should investors buy Tempur Sealy International for the upcoming dividend? We love that Tempur Sealy International 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 Tempur Sealy International, and we would prioritise taking a closer look at it.
So while Tempur Sealy International looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Case in point: We've spotted 2 warning signs for Tempur Sealy International you should be aware of.
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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