Yahoo Finance Canadian Tire Corporation, Limited (TSE:CTC.A) Looks Interesting, And It's About To Pay A Dividend
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Canadian Tire Corporation, Limited (TSE:CTC.A) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 29th of April to receive the dividend, which will be paid on the 1st of June.
Canadian Tire Corporation's next dividend payment will be CA$1.18 per share, on the back of last year when the company paid a total of CA$4.70 to shareholders. Last year's total dividend payments show that Canadian Tire Corporation has a trailing yield of 2.3% on the current share price of CA$201.21. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether Canadian Tire Corporation can afford its dividend, and if the dividend could grow.
See our latest analysis for Canadian Tire Corporation
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Canadian Tire Corporation paying out a modest 37% of its earnings. 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 13% 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Canadian Tire Corporation, with earnings per share up 7.4% on average 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. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Canadian Tire Corporation has increased its dividend at approximately 19% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Final Takeaway
From a dividend perspective, should investors buy or avoid Canadian Tire Corporation? Earnings per share growth has been growing somewhat, and Canadian Tire Corporation is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Canadian Tire Corporation is being conservative with its dividend payouts and could still perform reasonably over the long run. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks Canadian Tire Corporation is facing. In terms of investment risks, we've identified 2 warning signs with Canadian Tire Corporation and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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