Should income investors watch Tootsie Roll Industries, Inc. (NYSE:TR) ahead of its ex-dividend?

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Regular readers will know we love our dividends at Simply Wall St, which is why it’s exciting to see Tootsie Roll Industries, Inc. (NYSE:TR) is set to trade ex-dividend in the next 4 days. The ex-dividend date is usually one business day before the record date which is the latest date by which you must be present on the books of the company as a shareholder in order to receive the dividend. It is important to know the ex-dividend date, because any trade in the stock must have settled on or before the record date. So you can buy shares of Tootsie Roll Industries before March 4 in order to receive the dividend, which the company will pay on March 31.

The company’s next dividend payout will be $0.09 per share, following last year when the company paid a total of $0.36 to shareholders. Looking at the last 12 months of distributions, Tootsie Roll Industries has a yield of around 1.1% on its current price of $34.19. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! That’s why we always have to check if the dividend payouts seem sustainable and if the business is growing.

Check out our latest analysis for Tootsie Roll Industries

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. That’s why it’s good to see Tootsie Roll Industries paying out a modest 40% of its profits. A useful secondary check may be to assess whether Tootsie Roll Industries has generated enough free cash flow to pay its dividend. It distributed 45% of its free cash flow as dividends, a comfortable level of distribution for most companies.

It’s positive to see that Tootsie Roll Industries’ dividend is covered by both earnings and cash flow, as that’s usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests greater safety margin before the dividend is reduced.

Click here to see how much profit Tootsie Roll Industries has paid out over the past 12 months.

NYSE:TR Historic Dividend February 27, 2022

Have earnings and dividends increased?

Companies that aren’t growing profits can still be valuable, but it’s even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall enough, the company could be forced to cut its dividend. With that in mind, we’re not thrilled to see that Tootsie Roll Industries’ earnings per share have remained virtually flat for the past five years. We’d take that on a drop in earnings any day, but over the long term, the best dividend-paying stocks all increase their earnings per share.

Most investors primarily gauge a company’s dividend prospects by checking the historical rate of dividend growth. Over the past 10 years, Tootsie Roll Industries has increased its dividend by about 4.5% per year on average.

To summarize

Has Tootsie Roll Industries got what it takes to maintain its dividend payouts? While it’s not great to see earnings per share actually stable over the 10-year period we audited, at least the payout ratios are low and conservative. To summarize, Tootsie Roll Industries seems correct on this analysis, even if it does not seem like a remarkable opportunity.

So, even though Tootsie Roll Industries looks good from a dividend perspective, it’s still worth being aware of the risks associated with this stock. In terms of investment risks, we have identified 1 warning sign with Tootsie Roll Industries and understanding them should be part of your investment process.

As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. here is a curated list of attractive stocks that are strong dividend payers.

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

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