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Canadian Tire Corporation (TSE:CTC.A) Has Announced A Dividend Of CA$1.75

The board of Canadian Tire Corporation, Limited (TSE:CTC.A) has announced that it will pay a dividend of CA$1.75 per share on the 1st of June. This will take the annual payment to 5.0% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Canadian Tire Corporation

Canadian Tire Corporation's Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 183% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

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According to analysts, EPS should be several times higher next year. If recent patterns in the dividend continue, we could see the payout ratio reaching 36% which is fairly sustainable.

historic-dividend
historic-dividend

Canadian Tire Corporation Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of CA$1.40 in 2014 to the most recent total annual payment of CA$7.00. This implies that the company grew its distributions at a yearly rate of about 17% over that duration. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Canadian Tire Corporation's EPS has declined at around 19% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

Our Thoughts On Canadian Tire Corporation's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Canadian Tire Corporation (1 makes us a bit uncomfortable!) that you should be aware of before investing. Is Canadian Tire Corporation not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.