Yahoo Finance Why Canlan Ice Sports Corp. (TSE:ICE) Is A Dividend Rockstar
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Is Canlan Ice Sports Corp. (TSE:ICE) a good dividend stock? How would you know? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on the income from dividends, it's important to be a lot more stringent with your investments than the average punter.
Investors might not know much about Canlan Ice Sports's dividend prospects, even though it has been paying dividends for the last eight years and offers a 2.1% yield. A 2.1% yield is not inspiring, but the longer payment history has some appeal. There are a few simple ways to reduce the risks of buying Canlan Ice Sports for its dividend, and we'll go through these below.
Explore this interactive chart for our latest analysis on Canlan Ice Sports!
Payout ratios
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Looking at the data, we can see that 28% of Canlan Ice Sports's profits were paid out as dividends in the last 12 months. This is medium payout level that leaves enough capital in the business to fund opportunities that might arise, while also rewarding shareholders. Plus, there is room to increase the payout ratio over time.
Another important check we do is to see if the free cash flow generated is sufficient to pay the dividend. Canlan Ice Sports's cash payout ratio last year was 18%. Cash flows are typically lumpy, but this looks like an appropriately conservative payout.
Is Canlan Ice Sports's Balance Sheet Risky?
As Canlan Ice Sports has a meaningful amount of debt, we need to check its balance sheet to see if the company might have debt risks. A rough way to check this is with these two simple ratios: a) net debt divided by EBITDA (earnings before interest, tax, depreciation and amortisation), and b) net interest cover. Net debt to EBITDA measures a company's total debt load relative to its earnings (lower = less debt), while net interest cover measures the company's ability to pay the interest on its debt (higher = greater ability to pay interest costs). With net debt of more than twice its EBITDA, Canlan Ice Sports has a noticeable amount of debt, although if business stays steady, this may not be overly concerning.
Net interest cover can be calculated by dividing earnings before interest and tax (EBIT) by the company's net interest expense. With EBIT of 3.60 times its interest expense, Canlan Ice Sports's interest cover is starting to look a bit thin.
We update our data on Canlan Ice Sports every 24 hours, so you can always get our latest analysis of its financial health, here.
Dividend Volatility
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. The first recorded dividend for Canlan Ice Sports, in the last decade, was eight years ago. The company has been paying a stable dividend for a while now, which is great. However we'd prefer to see consistency for a few more years before giving it our full seal of approval. During the past eight-year period, the first annual payment was CA$0.06 in 2011, compared to CA$0.10 last year. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time.
The dividend has been growing at a reasonable rate, which we like. We're conscious though that one of the best ways to detect a multi-decade consistent dividend payer, is to watch a company pay dividends for 20 years - a distinction Canlan Ice Sports has not achieved yet.
Dividend Growth Potential
Examining whether the dividend is affordable and stable is important. However, it's also important to assess if earnings per share (EPS) are growing. Growing EPS can help maintain or increase the purchasing power of the dividend over the long run. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Canlan Ice Sports has grown its earnings per share at 33% per annum over the past five years. With high earnings per share growth in recent times and a modest payout ratio, we think this is an attractive combination if earnings can be reinvested to generate further growth.
Conclusion
To summarise, shareholders should always check that Canlan Ice Sports's dividends are affordable, that its dividend payments are relatively stable, and that it has decent prospects for growing its earnings and dividend. Firstly, we like that Canlan Ice Sports has low and conservative payout ratios. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we'd like. Overall we think Canlan Ice Sports scores well on our analysis. It's not quite perfect, but we'd definitely be keen to take a closer look.
See if management have put their money where their mouth is, by checking insider shareholdings in Canlan Ice Sports stock.
If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
