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TFSA Investors: Buy This Stock That Just Increased its Dividend by 10%

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Image source: Getty Images

Written by Amy Legate-Wolfe at The Motley Fool Canada

The Tax-Free Savings Account (TFSA) is one of the best places to collect passive income. That goes for both returns and dividend income. Yet this can be difficult to find in a volatile market. When I see a stock that’s increased its dividend by a whopping 10%? I pay attention. And you should, too. Let’s get into it.

Cargojet stock

The dividend stock we’re going to discuss today is Cargojet (TSX:CJT), the cargo airline and Canada’s only overnight cargo airline company. Despite higher interest rates and inflation, the company has seen its use rise lately. And as we near the holiday season, this should only improve.

That’s according to the company’s recent earnings report, which saw Cargojet stock remain stale, despite the tightening of purse strings in the last year. Its air freight services reported a profit of $10.5 million in the quarter, down from $83.5 million the same time the year before. Clearly, it’s not back to normal.

For now, the company is attempting to find ways to cut costs. In particular, the company is looking at every opportunity to cut back on overspending, which got out of hand during the high demand of the COVID-19 pandemic.

Analysts weigh in

While the results weren’t everything investors hoped for, those results were only just below analyst estimates. Therefore, the company’s outlook looks widely intact, with analysts remaining positive about the future of Cargojet stock — especially when volumes recover and indeed increase.

Some analysts now believe that full-year projections will remain intact or even fall. However, analysts think that 2024 and 2025 should be quite strong. Therefore, there is the belief that investors can remain optimistic about the future of Cargojet stock, especially in 2024.

Demands are already starting to climb upwards, with e-commerce leading the way for more growth for Cargojet stock. It’s now producing an attractive supply-and-demand dynamic, and with cost cuts in place, the stock should have no issue rising upwards in the near future. This is likely why analysts remain with an outperform recommendation for the dividend stock.

A dividend increase?

Despite the rough news and soft quarterly performance, Cargojet stock still went ahead with a 10% dividend increase. Furthermore, the stock started a share-buyback program. Clearly, the company is betting on the share price rising.

In fact, with shares down 13% in the last year, it seems like the valuation is there for investors. Investors can now expect a quarterly dividend of $0.3146 per share. Meanwhile, value looks to be there. The stock trades at just 2.48 times earnings, 2.14 times book value, and with enterprise value trading at 8.25 over earnings before interest, taxes, depreciation, and amortization. Plus, its debt-to-equity ratio of just 90.66% is healthy, as it would have enough equity to cover all debts.

So, with a dividend yield of 1.14%, investors can get a yield that is higher than the 0.81% five-year average. Further, that yield looks quite solid, with a payout ratio of 26.48% as of writing. As Cartgojet stock looks to improve and cut costs, it looks like investors would do well to get this dividend stock back on their radar.

The post TFSA Investors: Buy This Stock That Just Increased its Dividend by 10% appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Cargojet?

Before you consider Cargojet, you'll want to hear this.

Our market-beating analyst team just revealed what they believe are the 5 best stocks for investors to buy in November 2023... and Cargojet wasn't on the list.

The online investing service they've run for nearly a decade, Motley Fool Stock Advisor Canada, is beating the TSX by 24 percentage points. And right now, they think there are 5 stocks that are better buys.

See the 5 Stocks * Returns as of 11/14/23

More reading

Fool contributor Amy Legate-Wolfe has positions in Cargojet. The Motley Fool has positions in and recommends Cargojet. The Motley Fool has a disclosure policy.

2023