Avoid Pine Cliff Energy On TSX For One Better Dividend Stock Option

In the Canadian market, where the average dividend yield sits at around 3.5%, higher-yielding stocks can understandably catch the eye of investors looking for substantial income. However, caution is warranted as some high dividends may not be sustainable and could indicate underlying financial challenges within a company. This makes it crucial to assess the stability and reliability of a dividend before considering such investments.

Top 10 Dividend Stocks In Canada

Name	Dividend Yield	Dividend Rating
Bank of Nova Scotia (TSX:BNS)	6.81%	★★★★★★
Whitecap Resources (TSX:WCP)	7.17%	★★★★★★
Enghouse Systems (TSX:ENGH)	3.41%	★★★★★☆
Boston Pizza Royalties Income Fund (TSX:BPF.UN)	8.42%	★★★★★☆
Secure Energy Services (TSX:SES)	3.31%	★★★★★☆
Royal Bank of Canada (TSX:RY)	3.81%	★★★★★☆
Russel Metals (TSX:RUS)	4.56%	★★★★★☆
Canadian Natural Resources (TSX:CNQ)	4.22%	★★★★★☆
Canadian Western Bank (TSX:CWB)	3.18%	★★★★★☆
Firm Capital Mortgage Investment (TSX:FC)	8.99%	★★★★★☆

Click here to see the full list of 33 stocks from our Top TSX Dividend Stocks screener.

Below we spotlight one of our favorites from our exclusive screener and one you might the flick.

Top Pick

K-Bro Linen (TSX:KBL)

Simply Wall St Dividend Rating: ★★★★★☆

Overview: K-Bro Linen Inc. operates in Canada and the United Kingdom, offering laundry and linen services primarily to healthcare institutions and hotels, with a market capitalization of approximately CA$348.03 million.

Operations: The company generates CA$330.33 million from its laundry and linen services provided to the healthcare and hospitality sectors.

Dividend Yield: 3.5%

K-Bro Linen Inc. has demonstrated a commitment to shareholder returns with consistent dividend payments, recently affirming a monthly distribution of 10 cents per share. The company supports these dividends through a sustainable payout ratio of 73.2% and a cash payout ratio of 38.5%, ensuring dividends are well-covered by both earnings and cash flow. Although its dividend yield of 3.6% is below the top Canadian payers, its stability and growth in distributions, coupled with an aggressive share buyback program that recently targeted up to 7.17% of issued shares for cancellation, highlight its prudent financial management in contrast to firms with unsustainable high yields.

• Click to explore a detailed breakdown of our findings in K-Bro Linen's dividend report.
• Upon reviewing our latest valuation report, K-Bro Linen's share price might be too pessimistic.

Dividend Trap

Pine Cliff Energy (TSX:PNE)

Simply Wall St Dividend Rating: ★★☆☆☆☆

Overview: Pine Cliff Energy Ltd. is a company focused on the acquisition, exploration, development, and production of natural gas and crude oil in the Western Canadian Sedimentary Basin, with a market capitalization of approximately CA$365.05 million.

Operations: The company primarily generates revenue from the exploration, development, and production of natural gas and crude oil.

Dividend Yield: 13%

Pine Cliff Energy Ltd. faces significant challenges as a dividend stock to avoid, primarily due to its unsustainable high yield of 12.75% and lack of free cash flows. Despite maintaining stable monthly dividends, the payments are not well-covered by either earnings or cash flow, evidenced by a recent shift from net income to a net loss in Q1 2024. Additionally, trading at 69.1% below estimated fair value suggests underlying issues with profitability and financial health that could jeopardize future dividend reliability and growth.

• Get an in-depth perspective on Pine Cliff Energy's performance by reading our dividend report here.

Next Steps

• Delve into our full catalog of 33 Top TSX Dividend Stocks here.
• Already own some of these companies? Bring clarity to your investment decisions by linking up your portfolio with Simply Wall St, where you can monitor all the vital signs of your stocks effortlessly.
• Discover a world of investment opportunities with Simply Wall St's free app and access unparalleled stock analysis across all markets.

Interested In Other Possibilities?

• Explore high-performing small cap companies that haven't yet garnered significant analyst attention.
• Fuel your portfolio with companies showing strong growth potential, backed by optimistic outlooks both from analysts and management.
• Find companies with promising cash flow potential yet trading below their fair value.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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