Tredegar's (NYSE:TG) Dividend Will Be US$0.12
Tredegar Corporation's (NYSE:TG) investors are due to receive a payment of US$0.12 per share on 1st of October. Based on this payment, the dividend yield on the company's stock will be 49%, which is an attractive boost to shareholder returns.
View our latest analysis for Tredegar
Tredegar Doesn't Earn Enough To Cover Its Payments
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Tredegar's dividend made up quite a large proportion of earnings but only 30% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.
If the company can't turn things around, EPS could fall by 6.5% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 1,209%, which could put the dividend under pressure if earnings don't start to improve.
Tredegar Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was US$0.16 in 2011, and the most recent fiscal year payment was US$0.48. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
Dividend Growth Is Doubtful
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. In the last five years, Tredegar's earnings per share has shrunk at approximately 6.5% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 2 warning signs for Tredegar that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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