Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TransAct Technologies Incorporated (NASDAQ:TACT) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 19th of August in order to receive the dividend, which the company will pay on the 16th of September.
TransAct Technologies's next dividend payment will be US$0.09 per share, and in the last 12 months, the company paid a total of US$0.36 per share. Last year's total dividend payments show that TransAct Technologies has a trailing yield of 3.1% on the current share price of $11.7. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. TransAct Technologies is paying out an acceptable 60% of its profit, a common payout level among most companies. 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 paid out 88% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's positive to see that TransAct Technologies'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 that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that TransAct Technologies's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. A high payout ratio of 60% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, TransAct Technologies could be signalling that its future growth prospects are thin.
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, 7 years ago, TransAct Technologies has lifted its dividend by approximately 6.0% a year on average.
The Bottom Line
Has TransAct Technologies got what it takes to maintain its dividend payments? TransAct Technologies has struggled to grow its earnings per share, and while the company is paying out a majority of its earnings and cash flow in the form of dividends, the dividend payments don't appear unsustainable. To summarise, TransAct Technologies looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Curious about whether TransAct Technologies has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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. Thank you for reading.