In This Article:
The Toro Company's (NYSE:TTC) dividend will be increasing from last year's payment of the same period to $0.34 on 12th of July. This takes the annual payment to 1.4% of the current stock price, which unfortunately is below what the industry is paying.
Check out our latest analysis for Toro
Toro's Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Prior to this announcement, Toro's dividend was only 26% of earnings, however it was paying out 108% of free cash flows. While the business may be attempting to set a balanced dividend policy, a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to rise by 19.1% over the next year. If the dividend continues on this path, the payout ratio could be 25% by next year, which we think can be pretty sustainable going forward.
Toro Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.22 in 2013 to the most recent total annual payment of $1.36. This implies that the company grew its distributions at a yearly rate of about 20% over that duration. 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.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Toro has impressed us by growing EPS at 16% per year over the past five years. Toro definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Toro's payments are rock solid. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Toro that investors need to be conscious of moving forward. Is Toro not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.