It looks like Travel + Leisure Co. (NYSE:TNL) is about to go 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. In other words, investors can purchase Travel + Leisure's shares before the 14th of September in order to be eligible for the dividend, which will be paid on the 29th of September.
The company's next dividend payment will be US$0.45 per share, on the back of last year when the company paid a total of US$1.80 to shareholders. Looking at the last 12 months of distributions, Travel + Leisure has a trailing yield of approximately 4.6% on its current stock price of $39.25. If you buy this business for its dividend, you should have an idea of whether Travel + Leisure's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Travel + Leisure's payout ratio is modest, at just 38% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (51%) of its free cash flow in the past year, which is within an average range for most companies.
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.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Readers will understand then, why we're concerned to see Travel + Leisure's earnings per share have dropped 5.1% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Travel + Leisure has lifted its dividend by approximately 6.9% a year on average.
The Bottom Line
Is Travel + Leisure an attractive dividend stock, or better left on the shelf? Earnings per share have fallen significantly, although at least Travel + Leisure paid out less than half of its profits and free cash flow over the last year, leaving some margin of safety. Overall, it's hard to get excited about Travel + Leisure from a dividend perspective.
However if you're still interested in Travel + Leisure as a potential investment, you should definitely consider some of the risks involved with Travel + Leisure. To that end, you should learn about the 2 warning signs we've spotted with Travel + Leisure (including 1 which is potentially serious).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.