Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.
Let's examine how Total
First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.
Total yields 5.0%, quite a bit higher than the S&P 500's 2.1%.
2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last year to the earnings it generated. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford, even when its dividend yield doesn’t seem particularly high.
Total has a payout ratio of 54%.
3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than 5 times is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.
Total has a debt-to-equity ratio of 49% and an interest coverage rate of 35 times.
A large dividend is nice; a large, growing dividend is even better. To support a growing dividend, we also want to see earnings growth.
Over the past five years, Total's earnings have grown its earnings per share at an average annual rate of 2%, while its dividend has grown at a 9% rate.
The Foolish bottom line
Total could very well be a dividend dynamo. It has a high yield, a reasonable payout ratio, manageable debt, and a bit of growth to boot. If you’re looking for other great dividend stocks, check out "Secure Your Future With 11 Rock-Solid Dividend Stocks," a special report from the Motley Fool about some serious dividend dynamos. I invite you to grab a free copy to discover everything you need to know about the 11 generous dividend-payers – simply click here.
Ilan Moscovitz doesn't own shares of any company mentioned. You can follow him on Twitter @TMFDada. Motley Fool newsletter services have recommended buying shares of Total. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insightsmakes us better investors. The Motley Fool has a disclosure policy.
More from The Motley Fool
Why These 2 Big Oil Stocks Jumped in October
They surprised some investors by leaving their U.S.-based peers in the dust.
Total SA Q3 Earnings Suggest It's Not Done Making Deals
After another solid earnings result and an improved financial position, don't be surprised if Total's management stays on the offensive.
3 Things to Watch When ExxonMobil, Chevron, and Total SA Report Q3 2017 Earnings
All three of these oil industry heavyweights report earnings on Oct. 27. Here's what investors should look for.