Readers hoping to buy Thomson Reuters Corporation (TSE:TRI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 5th of March to receive the dividend, which will be paid on the 18th of March.
Thomson Reuters’s next dividend payment will be CA$0.38 per share, on the back of last year when the company paid a total of CA$1.52 to shareholders. Calculating the last year’s worth of payments shows that Thomson Reuters has a trailing yield of 2.0% on the current share price of CA$99.71. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Thomson Reuters
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Thomson Reuters paid out a comfortable 46% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year, it paid out dividends equivalent to 356% of what it generated in free cash flow, a disturbingly high percentage. Our definition of free cash flow excludes cash generated from asset sales, so since Thomson Reuters is paying out such a high percentage of its cash flow, it might be worth seeing if it sold assets or had similar events that might have led to such a high dividend payment.
Thomson Reuters paid out less in dividends than it reported in profits, but unfortunately it didn’t generate enough cash to cover the dividend. Cash is king, as they say, and were Thomson Reuters to repeatedly pay dividends that aren’t well covered by cashflow, we would consider this a warning sign.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
TSX:TRI Historical Dividend Yield, February 29th 2020
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 fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Thomson Reuters earnings per share are up 3.8% per annum over the last five years. Earnings have been growing somewhat, but we’re concerned dividend payments consumed most of the company’s cash flow over the past year.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Thomson Reuters has delivered 2.1% dividend growth per year on average over the past ten years. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Thomson Reuters worth buying for its dividend? Thomson Reuters delivered reasonable earnings per share growth in recent times, and paid out less than half its profits and 356% of its cash flow over the last year, which is a mediocre outcome. Overall, it’s hard to get excited about Thomson Reuters from a dividend perspective.
Curious what other investors think of Thomson Reuters? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.
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. Thank you for reading.
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