Tricon Residential Inc. (TSE:TCN) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Tricon Residential's shares before the 28th of December in order to be eligible for the dividend, which will be paid on the 15th of January.

The company's next dividend payment will be US$0.058 per share, on the back of last year when the company paid a total of US$0.23 to shareholders. Calculating the last year's worth of payments shows that Tricon Residential has a trailing yield of 2.5% on the current share price of CA$12.12. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Tricon Residential

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Tricon Residential's payout ratio is modest, at just 31% of profit. 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 more than three-quarters (77%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Tricon Residential's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.



Click here to see the company's payout ratio, plus analyst estimates of its future dividends. TSX:TCN Historic Dividend December 23rd 2023

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. This is why it's a relief to see Tricon Residential earnings per share are up 8.9% per annum over the last five years. Decent historical earnings per share growth suggests Tricon Residential has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.

We'd also point out that Tricon Residential issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Tricon Residential's dividend payments are effectively flat on where they were 10 years ago.

To Sum It Up

From a dividend perspective, should investors buy or avoid Tricon Residential? Earnings per share growth has been modest, and it's interesting that Tricon Residential is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.

While it's tempting to invest in Tricon Residential for the dividends alone, you should always be mindful of the risks involved. Be aware that Tricon Residential is showing 5 warning signs in our investment analysis, and 2 of those don't sit too well with us...

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.