Trinity Industries (NYSE:TRN) Is Increasing Its Dividend To $0.31

Trinity Industries, Inc. (NYSE:TRN) has announced that it will be increasing its dividend from last year's comparable payment on the 30th of January to $0.31. This will take the annual payment to 4.7% of the stock price, which is above what most companies in the industry pay.

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Trinity Industries' Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Trinity Industries was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. We think that this practice can make the dividend quite risky in the future.

Earnings per share is forecast to rise by 26.4% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 83% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Check out our latest analysis for Trinity Industries

Trinity Industries Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2016, the annual payment back then was $0.40, compared to the most recent full-year payment of $1.24. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Trinity Industries Might Find It Hard To Grow Its Dividend

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Trinity Industries has been growing its earnings per share at 131% a year over the past five years. Earnings per share is growing nicely, but the company is paying out most of its earnings as dividends. This might be sustainable, but we wonder why Trinity Industries is not retaining those earnings to reinvest in growth.

Our Thoughts On Trinity Industries' Dividend

Overall, we always like to see the dividend being raised, but we don't think Trinity Industries will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Trinity Industries you should be aware of, and 2 of them are a bit unpleasant. Is Trinity Industries not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.