Power Corporation of Canada (TSE:POW) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 5.5%, and has a market cap of CA$13b. Let’s dig deeper into whether Power of Canada should have a place in your portfolio.
5 checks you should do on a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does Power of Canada fit our criteria?
The current trailing twelve-month payout ratio for the stock is 54%, which means that the dividend is covered by earnings. However, going forward, analysts expect POW’s payout to fall to 45% of its earnings. Assuming a constant share price, this equates to a dividend yield of 5.8%. However, EPS should increase to CA$3.55, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. POW has increased its DPS from CA$1.16 to CA$1.53 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. This is an impressive feat, which makes POW a true dividend rockstar.
In terms of its peers, Power of Canada generates a yield of 5.5%, which is high for Insurance stocks but still below the market’s top dividend payers.
With these dividend metrics in mind, I definitely rank Power of Canada as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three relevant factors you should further research:
- Valuation: What is POW 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 POW is currently mispriced by the market.
- Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Power of Canada’s board and the CEO’s back ground.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
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 firstname.lastname@example.org. 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.