The Toro Company: A Pillar of Dividend Growth in Industrial Investing

For long-term income investors, few metrics are as critical as dividend sustainability. In the industrial sector, where cyclical pressures often test corporate resilience, The Toro Company (TTC) stands out as a rare constant. With 22 consecutive years of dividend growth and a payout ratio that remains well-anchored to earnings, TTC exemplifies the qualities of a high-quality industrial equity. This analysis examines the durability of TTC's dividend program, its alignment with free cash flow trends, and its potential to reward patient investors.

A Legacy of Consistent Dividend Growth

The Toro Company's dividend history is a testament to its commitment to shareholder returns. As of July 2025, TTC pays a quarterly dividend of $0.38 per share, translating to an annualized $1.52 and a yield of 1.94%, according to MarketBeat. Over the past five years, the company has delivered an average dividend growth rate of 7.64%, outpacing the S&P 500 industrials sector's median growth of 4.2%, per StockInvest. More impressively, TTC has raised its dividend for 22 consecutive years, a streak that underscores its ability to navigate economic cycles while maintaining a rising payout.

This consistency is not accidental. TTC's payout ratio-measured at 44.78% based on trailing earnings, according to StockInvest-suggests a disciplined approach to balancing shareholder returns with reinvestment. A payout ratio below 50% is generally considered sustainable, particularly in capital-intensive industries like industrial equipment, where cash flow volatility is common. By keeping dividends well within earnings, TTC insulates itself from downturns that could force cuts-a critical trait for income-focused investors.

Free Cash Flow: The Engine Behind Dividend Growth

While earnings provide a starting point, free cash flow (FCF) is the true driver of dividend sustainability. TTC's FCF trajectory reveals a company that has mastered the art of turning industrial challenges into long-term value. In 2024, TTC's FCF surged to $466 million, a 195% increase from 2023, reflecting robust demand for its lawn and grounds equipment amid post-pandemic recovery, as shown by MacroTrends. This follows a 7.5% rise in 2023 and a 65% decline in 2022, illustrating the cyclical nature of its business.

However, TTC's ability to generate positive FCF even during downturns is noteworthy. For instance, despite a $448 million FCF deficit in 2019-a year marked by industry-wide supply chain disruptions-the company avoided dividend cuts and resumed growth by 2020, per MacroTrends. Over the past decade, TTC's FCF has averaged $250 million annually, with a trailing twelve-month (TTM) CAGR of 188.81% as of 2025, according to MacroTrends. This dramatic recovery, coupled with a sector-leading FCF growth rate of 31.77% compared to the industrials median of 5.46%, positions TTC as a rare industrial equity, according to a FinanceCharts FCF chart.

A Forward-Looking Perspective

For income investors, the question is not just whether TTC can sustain its dividend but whether it can continue to grow it. StockInvest reports a 5-year CAGR of 8.74% and assigns a Dividend Sustainability Score of 94.69%, suggesting strong potential. The company's focus on innovation-such as its expansion into smart irrigation systems and professional turf equipment-further insulates it from commoditization. These high-margin segments are expected to drive incremental cash flow, providing a buffer against cyclical headwinds.

Critically, TTC's payout ratio remains flexible. At 44.78% (per StockInvest), it leaves room for continued growth even if earnings moderate. By contrast, companies with payout ratios above 70% often face constraints during downturns. TTC's balance sheet, with a debt-to-equity ratio of 0.45 (as of Q2 2025), also supports its dividend capacity, offering a safety net for operations and shareholder returns.

Conclusion: A Blue-Chip Industrial for Income Investors

The Toro Company's dividend growth story is one of discipline, adaptability, and long-term vision. Its ability to maintain a rising payout through 22 consecutive years, even amid volatile FCF, speaks to its operational excellence. For investors seeking durable income in the industrial sector, TTC offers a compelling case: a moderate yield, a sustainable payout ratio, and a business model that converts innovation into consistent cash flow. As the industrial landscape evolves, TTC's dividend growth trajectory remains a beacon of stability.