Turning Point Brands, Inc. (NYSE:TPB) Passed Our Checks, And It's About To Pay A US$0.07 Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Turning Point Brands, Inc. (NYSE:TPB) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. This means that investors who purchase Turning Point Brands' shares on or after the 21st of March will not receive the dividend, which will be paid on the 12th of April.
The company's upcoming dividend is US$0.07 a share, following on from the last 12 months, when the company distributed a total of US$0.26 per share to shareholders. Looking at the last 12 months of distributions, Turning Point Brands has a trailing yield of approximately 1.0% on its current stock price of US$27.65. If you buy this business for its dividend, you should have an idea of whether Turning Point Brands's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Turning Point Brands
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. Turning Point Brands has a low and conservative payout ratio of just 12% of its income after tax. 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. What's good is that dividends were well covered by free cash flow, with the company paying out 7.4% of its cash flow last year.
It's positive to see that Turning Point Brands'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Turning Point Brands's earnings per share have been growing at 11% a year for the past five years. Earnings per share are growing rapidly and the company is keeping more than half of its earnings within the business; an attractive combination which could suggest the company is focused on reinvesting to grow earnings further. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Turning Point Brands has delivered 9.8% dividend growth per year on average over the past six years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
From a dividend perspective, should investors buy or avoid Turning Point Brands? We love that Turning Point Brands 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. Overall we think this is an attractive combination and worthy of further research.
So while Turning Point Brands looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we've identified 1 warning sign with Turning Point Brands and understanding them should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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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.
