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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.
See our latest analysis for TFI International
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.
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 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.