Canadian Tire Corporation, Limited (TSE:CTC.A) Passed Our Checks, And It's About To Pay A CA$1.18 Dividend
Readers hoping to buy Canadian Tire Corporation, Limited (TSE:CTC.A) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 28th of January in order to be eligible for this dividend, which will be paid on the 1st of March.
Canadian Tire Corporation's upcoming dividend is CA$1.18 a share, following on from the last 12 months, when the company distributed a total of CA$4.70 per share to shareholders. Last year's total dividend payments show that Canadian Tire Corporation has a trailing yield of 2.8% on the current share price of CA$170.88. If you buy this business for its dividend, you should have an idea of whether Canadian Tire Corporation's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Canadian Tire Corporation
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. Fortunately Canadian Tire Corporation's payout ratio is modest, at just 47% of profit. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 11% of its cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Canadian Tire Corporation earnings per share are up 5.0% per annum over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Canadian Tire Corporation has increased its dividend at approximately 19% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has Canadian Tire Corporation got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Canadian Tire Corporation is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Canadian Tire Corporation is halfway there. There's a lot to like about Canadian Tire Corporation, and we would prioritise taking a closer look at it.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 1 warning sign for Canadian Tire Corporation you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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