Is Trinity Industries on the Improper Aspect of the Tracks?

Railcar producer Trinity Industries (NYSE: TRN) is on the radar of earnings buyers, because the inventory pays a 4.8% yield and has a formidable historical past of annual dividend raises.

However can the corporate proceed to spice up the dividend, or will the dividend bounce the tracks?

Trinity has not generated any money circulation for the previous three years. The excellent news is that’s anticipated to vary this 12 months. Wall Road forecasts free money circulation to succeed in $34 million in 2025 and climb to $51 million subsequent 12 months.

I’ll give credit score the place credit score is due. That’s a large enchancment.

Nevertheless, it’s not sufficient to pay the corporate’s dividend.

This 12 months, Trinity is predicted to pay $94 million in dividends – almost 3 times as a lot because it’s projected to generate in money circulation. Subsequent 12 months, dividends paid is anticipated to be $97 million versus $51 million in money circulation, so the corporate continues to be paying out extra in dividends than it makes in money circulation.

The projected payout ratio (the share of money circulation paid out in dividends) of 190% is a lot better than this 12 months’s 276%. However when the dividend payout continues to be almost double the money circulation the corporate produces, it’s a really regarding signal.

That being mentioned, money circulation issues haven’t stopped the corporate from elevating the dividend up to now. Trinity Industries’ dividend has elevated yearly for 14 years – even when it was hemorrhaging money.

So, on the plus aspect, Trinity is predicted to return to being money circulation optimistic and to proceed rising its money circulation this 12 months and subsequent 12 months. Its dividend-raising observe document can also be spectacular. However the payout ratio is just too excessive. Until it takes out a mortgage, the corporate merely can’t afford the dividend it’s been paying – and it hasn’t been in a position to for years.

Whereas administration appears dedicated to elevating the dividend, the payout needs to be thought of reasonably dangerous.

Dividend Security Score: C

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