Shares of Toromont Industries Ltd (TSE:TIH) will begin trading ex-dividend in 4 days. To qualify for the dividend check of CA$0.23 per share, investors must have owned the shares prior to 06 December 2018, which is the last day the company’s management will finalize their list of shareholders to which they will send dividend payments. Investors looking for higher income-generating stocks to add to their portfolio should keep reading, as I examine Toromont Industries’s latest financial data to analyse its dividend characteristics.

See our latest analysis for Toromont Industries

Here’s how I find good dividend stocks

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Does it consistently pay out dividends without missing a payment of significantly cutting payout?

• Has the amount of dividend per share grown over the past?

• Is is able to pay the current rate of dividends from its earnings?

• Will it have the ability to keep paying its dividends going forward?

How does Toromont Industries fare?

The current trailing twelve-month payout ratio for the stock is 32%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect TIH’s payout to fall to 26% of its earnings, which leads to a dividend yield of 1.6%. However, EPS should increase to CA$3.28, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of TIH it has increased its DPS from CA$0.56 to CA$0.92 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.

Compared to its peers, Toromont Industries generates a yield of 1.6%, which is on the low-side for Trade Distributors stocks.

Next Steps:

With this in mind, I definitely rank Toromont Industries as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three essential aspects you should further research: