Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Tricon Residential Inc. (TSE:TCN) is about to trade ex-dividend in the next 3 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase Tricon Residential's shares on or after the 29th of June, you won't be eligible to receive the dividend, when it is paid on the 15th of July.
The company's next dividend payment will be US$0.058 per share, and in the last 12 months, the company paid a total of US$0.23 per share. Calculating the last year's worth of payments shows that Tricon Residential has a trailing yield of 2.3% on the current share price of CA$13.14. If you buy this business for its dividend, you should have an idea of whether Tricon Residential's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Tricon Residential paid out just 8.6% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Tricon Residential paid out more free cash flow than it generated - 125%, to be precise - last year, which we think is concerningly high. It's hard to consistently pay out more cash than you generate without either borrowing or using company cash, so we'd wonder how the company justifies this payout level.
Tricon Residential paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Tricon Residential's ability to maintain its dividend.
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. That's why it's comforting to see Tricon Residential's earnings have been skyrocketing, up 34% per annum for the past five years. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
We'd also point out that Tricon Residential issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Tricon Residential's dividend payments are broadly unchanged compared to where they were 10 years ago.
To Sum It Up
From a dividend perspective, should investors buy or avoid Tricon Residential? We're glad to see the company has been improving its earnings per share while also paying out a low percentage of income. However, it's not great to see it paying out what we see as an uncomfortably high percentage of its cash flow. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Tricon Residential's dividend merits.
So while Tricon Residential looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 6 warning signs for Tricon Residential (of which 2 are a bit unpleasant!) you should know about.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.