The TJX Companies, Inc. (NYSE:TJX) has announced that it will be increasing its dividend from last year's comparable payment on the 5th of June to $0.425. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.

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TJX Companies' Future Dividend Projections Appear Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, TJX Companies' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 31.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 31% by next year, which is in a pretty sustainable range.

See our latest analysis for TJX Companies

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.35 in 2015 to the most recent total annual payment of $1.70. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year over that time. TJX Companies has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

TJX Companies Could Grow Its Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. TJX Companies has impressed us by growing EPS at 10.0% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

TJX Companies Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that TJX Companies is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for TJX Companies that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.