Stock Analysis

Be Sure To Check Out Loblaw Companies Limited (TSE:L) Before It Goes Ex-Dividend

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TSX:L
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Loblaw Companies Limited (TSE:L) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Loblaw Companies' shares before the 14th of December in order to be eligible for the dividend, which will be paid on the 30th of December.

The company's next dividend payment will be CA$0.41 per share. Last year, in total, the company distributed CA$1.62 to shareholders. Based on the last year's worth of payments, Loblaw Companies stock has a trailing yield of around 1.3% on the current share price of CA$124.8. If you buy this business for its dividend, you should have an idea of whether Loblaw Companies's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out the opportunities and risks within the CA Consumer Retailing industry.

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Loblaw Companies is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. The good news is it paid out just 16% of its free cash flow in the last year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
TSX:L Historic Dividend December 9th 2022

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Loblaw Companies's earnings have been skyrocketing, up 22% per annum for the past five years. Loblaw Companies earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky "beep-beep". We also like that it is reinvesting most of its profits in its business.'

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Loblaw Companies has delivered an average of 6.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Loblaw Companies an attractive dividend stock, or better left on the shelf? Loblaw Companies has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Loblaw Companies, and we would prioritise taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 3 warning signs for Loblaw Companies (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

Valuation is complex, but we're helping make it simple.

Find out whether Loblaw Companies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About TSX:L

Loblaw Companies

Loblaw Companies Limited, a food and pharmacy company, engages in the grocery, pharmacy, health and beauty, apparel, general merchandise, financial services, and wireless mobile products and services businesses in Canada.

Solid track record with adequate balance sheet and pays a dividend.