Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see TFI International Inc. (TSE:TFII) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 27th of September, you won't be eligible to receive this dividend, when it is paid on the 15th of October.
TFI International's next dividend payment will be CA$0.2 per share. Last year, in total, the company distributed CA$1.0 to shareholders. Calculating the last year's worth of payments shows that TFI International has a trailing yield of 2.4% on the current share price of CA$40.08. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether TFI International can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. TFI International has a low and conservative payout ratio of just 24% of its income after tax. A useful secondary check can be to evaluate whether TFI International generated enough free cash flow to afford its dividend. It distributed 26% of its free cash flow as dividends, a comfortable payout level 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 consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see TFI International has grown its earnings rapidly, up 41% a year for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, TFI International has lifted its dividend by approximately 9.1% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Has TFI International got what it takes to maintain its dividend payments? We love that TFI International 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. There's a lot to like about TFI International, and we would prioritise taking a closer look at it.
Wondering what the future holds for TFI International? See what the 12 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 firstname.lastname@example.org. 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.