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There's A Lot To Like About Thomson Reuters' (TSE:TRI) Upcoming US$0.45 Dividend

·3 min read

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Thomson Reuters Corporation (TSE:TRI) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Thomson Reuters investors that purchase the stock on or after the 23rd of February will not receive the dividend, which will be paid on the 15th of March.

The company's upcoming dividend is US$0.45 a share, following on from the last 12 months, when the company distributed a total of US$1.78 per share to shareholders. Calculating the last year's worth of payments shows that Thomson Reuters has a trailing yield of 1.8% on the current share price of CA$127.96. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Thomson Reuters has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Thomson Reuters

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. Thomson Reuters has a low and conservative payout ratio of just 14% of its income after tax. A useful secondary check can be to evaluate whether Thomson Reuters generated enough free cash flow to afford its dividend. Dividends consumed 60% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

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

historic-dividend
historic-dividend

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 fall far enough, the company could be forced to cut its dividend. It's encouraging to see Thomson Reuters has grown its earnings rapidly, up 51% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Thomson Reuters has increased its dividend at approximately 2.7% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Thomson Reuters is keeping back more of its profits to grow the business.

To Sum It Up

Is Thomson Reuters an attractive dividend stock, or better left on the shelf? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. There's a lot to like about Thomson Reuters, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. We've identified 4 warning signs with Thomson Reuters (at least 2 which make us uncomfortable), and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.