Toro (NYSE: TTC) could be a buy for its next dividend

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It looks like The Toro Company (NYSE: TTC) is set to be ex-dividend within the next 4 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because every time a stock is bought or sold, the transaction takes at least two business days to settle. This means that you will have to buy Toro shares by October 5 to receive the dividend, which will be paid on October 21.

The company’s next dividend will be US $ 0.26 per share. Last year, in total, the company distributed US $ 1.05 to shareholders. Based on the value of last year’s payouts, Toro has a rolling 1.1% return on the current share price of $ 99.53. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! Therefore, readers should always check whether Toro has been able to increase its dividends or if the dividend could be reduced.

Check out our latest review for Toro

Dividends are usually paid out of business income, so if a business pays more than it earned, its dividend is usually at risk of being reduced. Toro paid a comfortable 26% of its profits last year. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. The good news is that she has only paid out 18% of her free cash flow in the past year.

It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.

Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.

NYSE: TTC Historical Dividend September 30, 2021

Have profits and dividends increased?

Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. If business goes into recession and the dividend is reduced, the company could experience a sharp drop in value. For this reason, we are pleased to see that Toro’s earnings per share have grown 17% per year over the past five years. Earnings per share have grown rapidly and the company keeps the majority of its profits with the business. Fast-growing companies that reinvest heavily are attractive from a dividend standpoint, especially since they can often increase the payout ratio later.

Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. Over the past 10 years, Toro has increased its dividend by approximately 18% per year on average. It is exciting to see that earnings and dividends per share have grown rapidly over the past few years.

The bottom line

Does Toro have what it takes to maintain its dividend payments? We like the fact that Toro is increasing its earnings per share while simultaneously paying a small percentage of its earnings and cash flow. These characteristics suggest that the company is reinvesting in growing its business, while the prudent payout ratio also implies reduced risk of dividend reduction in the future. It is a promising combination that should mark this company worthy of further attention.

In light of this, while Toro has an attractive dividend, it’s worth knowing the risks involved in this stock. To help you, we have discovered 1 warning sign for Toro which you should know before investing in their stocks.

If you are in the dividend-paying stock market, we recommend that you check out our list of the highest dividend-paying stocks with a yield above 2% and a future dividend.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

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