TWC Enterprises Limited (TSE:TWC) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase TWC Enterprises’ shares on or after the 29th of November, you won’t be eligible to receive the dividend, when it is paid on the 15th of December.
The company’s next dividend payment will be CA$0.05 per share, on the back of last year when the company paid a total of CA$0.20 to shareholders. Last year’s total dividend payments show that TWC Enterprises has a trailing yield of 1.2% on the current share price of CA$16.89. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether TWC Enterprises has been able to grow its dividends, or if the dividend might be cut.
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. TWC Enterprises paid out just 3.5% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. A useful secondary check can be to evaluate whether TWC Enterprises generated enough free cash flow to afford its dividend. The good news is it paid out just 4.1% of its free cash flow in the last year.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s encouraging to see TWC Enterprises has grown its earnings rapidly, up 39% a year for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, TWC Enterprises looks like a promising growth company.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. TWC Enterprises’s dividend payments per share have declined at 4.0% per year on average over the past 10 years, which is uninspiring. It’s unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We’d hope it’s because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
To Sum It Up
From a dividend perspective, should investors buy or avoid TWC Enterprises? It’s great that TWC Enterprises is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It’s disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There’s a lot to like about TWC Enterprises, and we would prioritise taking a closer look at it.
On that note, you’ll want to research what risks TWC Enterprises is facing. For example, we’ve found 1 warning sign for TWC Enterprises that we recommend you consider before investing in the business.
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.
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