Yahoo Finance Is The North West Company Inc. (TSE:NWC) A Great Dividend Stock?
A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Recently, The North West Company Inc. (TSE:NWC) has started paying dividends to shareholders. Today it yields 4.5%. Let’s dig deeper into whether North West should have a place in your portfolio.
See our latest analysis for North West
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
Is its annual yield among the top 25% of dividend-paying companies?
Has it paid dividend every year without dramatically reducing payout in the past?
Has the amount of dividend per share grown over the past?
Is is able to pay the current rate of dividends from its earnings?
Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does North West pass our checks?
North West has a trailing twelve-month payout ratio of 65%, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 64% which, assuming the share price stays the same, leads to a dividend yield of around 4.6%. Moreover, EPS should increase to CA$1.92.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Unfortunately, it is really too early to view North West as a dividend investment. Last year was the company’s first dividend payment, so it is certainly early days. The standard practice for reliable payers is to look for 10 or so years of track record.
Compared to its peers, North West has a yield of 4.5%, which is high for Consumer Retailing stocks but still below the market’s top dividend payers.
Next Steps:
Whilst there are few things you may like about North West from a dividend stock perspective, the truth is that overall it probably is not the best choice for a dividend investor. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three relevant factors you should further research:
Valuation: What is NWC worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether NWC is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on North West’s board and the CEO’s back ground.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
