Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Travel + Leisure Co. (NYSE:TNL) is about to go ex-dividend in just 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Travel + Leisure's shares before the 13th of September in order to be eligible for the dividend, which will be paid on the 30th of September.

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 4.7% on the current share price of US$42.70. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Travel + Leisure has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Travel + Leisure

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Travel + Leisure 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 37% of its free cash flow in the past year.

It's positive to see that Travel + Leisure's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

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

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Travel + Leisure's earnings per share have been growing at 16% a year for the past five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Travel + Leisure has delivered an average of 5.6% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Travel + Leisure is keeping back more of its profits to grow the business.

Final Takeaway

From a dividend perspective, should investors buy or avoid Travel + Leisure? It's great that Travel + Leisure is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. There's a lot to like about Travel + Leisure, and we would prioritise taking a closer look at it.

In light of that, while Travel + Leisure has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 2 warning signs for Travel + Leisure that we strongly recommend you have a look at before investing in the company.

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.