Why You Should Not Buy ECN Capital Corp (TSE:ECN) For Dividend

A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. In the past 2 years ECN Capital Corp (TSE:ECN) has returned an average of 1.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether ECN Capital should have a place in your portfolio.

See our latest analysis for ECN Capital

5 questions to ask before buying a dividend stock

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

• Does it pay an annual yield higher than 75% of dividend payers?

• Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?

• 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?

TSX:ECN Historical Dividend Yield August 9th 18

Does ECN Capital pass our checks?

ECN Capital has a negative payout ratio, which means that it is loss-making, and paying its dividend from its retained earnings.

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 ECN Capital as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Compared to its peers, ECN Capital has a yield of 1.12%, which is on the low-side for Diversified Financial stocks.

Next Steps:

Now you know to keep in mind the reason why investors should be careful investing in ECN Capital for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. 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. I’ve put together three key aspects you should further examine:

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

2. Valuation: What is ECN 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 ECN is currently mispriced by the market.

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 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.