Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see The TJX Companies, Inc. (NYSE:TJX) is about to trade ex-dividend in the next four days.  The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend.  The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date.   Accordingly, TJX Companies investors that purchase the stock on or after the 15th of May will not receive the dividend, which will be paid on the 6th of June.  

The company's upcoming dividend is US$0.375 a share, following on from the last 12 months, when the company distributed a total of US$1.50 per share to shareholders.  Calculating the last year's worth of payments shows that TJX Companies has a trailing yield of 1.5% on the current share price of US$98.91.    We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose!  As a result, readers should always check whether TJX Companies has been able to grow its dividends, or if the dividend might be cut.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable.   That's why it's good to see TJX Companies paying out a modest 34% of its earnings.     Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution.     Fortunately, it paid out only 34% of its free cash flow in the past year.    

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:TJX Historic Dividend May 10th 2024

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving.   Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time.     This is why it's a relief to see TJX Companies earnings per share are up 9.9% per annum over the last five years.        Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital.  We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.    

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth.     In the last 10 years, TJX Companies has lifted its dividend by approximately 18% a year on average.      It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.  

Final Takeaway

From a dividend perspective, should investors buy or avoid TJX Companies?      Earnings per share growth has been growing somewhat, and TJX Companies is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time.  We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and TJX Companies is halfway there.        Overall we think this is an attractive combination and worthy of further research.  

So while TJX Companies looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock.     Our analysis shows 2 warning signs for TJX Companies and you should be aware of these before buying any shares.  

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.