Income Investors Should Steer Clear of TMX Group Limited (TSE:X)

Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. TMX Group Limited (TSE:X) has returned to shareholders over the past 6 years, an average dividend yield of 3.00% annually. Does TMX Group tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for TMX Group

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

• Has the amount of dividend per share grown over the past?

• Does earnings amply cover its dividend payments?

• Will the company be able to keep paying dividend based on the future earnings growth?

TSX:X Historical Dividend Yield June 23rd 18

How does TMX Group fare?

The company currently pays out 52.31% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Furthermore, analysts have not forecasted a dividends per share for the future, which makes it hard to determine the yield shareholders should expect, and whether the current payout is sustainable, moving forward.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view TMX Group as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

In terms of its peers, TMX Group produces a yield of 2.70%, which is on the low-side for Capital Markets stocks.

Next Steps:

After digging a little deeper into TMX Group’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I’ve compiled three relevant factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for X’s future growth? Take a look at our free research report of analyst consensus for X’s outlook.

2. Historical Performance: What has X’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.