There’s A Lot To Like About Travel + Leisure’s (NYSE:TNL) Upcoming US$0.50 Dividend

Readers hoping to buy Travel + Leisure Co. (NYSE:TNL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company’s record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase Travel + Leisure’s shares on or after the 14th of June, you won’t be eligible to receive the dividend, when it is paid on the 28th of June.

The company’s next dividend payment will be US$0.50 per share, and in the last 12 months, the company paid a total of US$2.00 per share. Last year’s total dividend payments show that Travel + Leisure has a trailing yield of 4.5% on the current share price of US$43.99. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Travel + Leisure

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Travel + Leisure’s payout ratio is modest, at just 34% of profit. A useful secondary check can be to evaluate whether Travel + Leisure generated enough free cash flow to afford its dividend. It distributed 44% of its free cash flow as dividends, a comfortable payout level for most companies.

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.

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we’re glad to see Travel + Leisure’s earnings per share have risen 16% per annum over the last five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination – plus the dividend can always be increased later.

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Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Travel + Leisure has delivered 5.6% dividend growth per year on average over the past 10 years. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Has Travel + Leisure got what it takes to maintain its dividend payments? Travel + Leisure has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it’s cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.

While it’s tempting to invest in Travel + Leisure for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 3 warning signs we’ve spotted with Travel + Leisure (including 1 which is a bit unpleasant).

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.