Stock Analysis

Loblaw Companies (TSE:L) Will Pay A Larger Dividend Than Last Year At CA$0.36

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Loblaw Companies Limited (TSE:L) will increase its dividend on the 30th of December to CA$0.36. The announced payment will take the dividend yield to 1.5%, which is in line with the average for the industry.

See our latest analysis for Loblaw Companies

Loblaw Companies' Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Loblaw Companies was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 2.3%. If the dividend continues along recent trends, we estimate the payout ratio will be 33%, which is in the range that makes us comfortable with the sustainability of the dividend.

TSX:L Historic Dividend November 29th 2021

Loblaw Companies Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2011, the first annual payment was CA$0.84, compared to the most recent full-year payment of CA$1.46. This implies that the company grew its distributions at a yearly rate of about 5.7% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Loblaw Companies has impressed us by growing EPS at 16% per year over the past five years. Loblaw Companies definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Loblaw Companies' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Loblaw Companies that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.