Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Canfor Pulp Products Inc. (TSE:CFX) has paid dividends to shareholders, and these days it yields 1.7%. Let’s dig deeper into whether Canfor Pulp Products should have a place in your portfolio.
View our latest analysis for Canfor Pulp Products
5 questions I ask before picking a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is their annual yield among the top 25% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has dividend per share amount increased 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?
Does Canfor Pulp Products pass our checks?
The company currently pays out 8.8% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 10.0% which, assuming the share price stays the same, leads to a dividend yield of 1.7%. However, EPS is forecasted to fall to CA$1.76 in the upcoming year. Therefore, although payout is expected to increase, the fall in earnings may not equate to higher dividend income.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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 Canfor Pulp Products as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Canfor Pulp Products produces a yield of 1.7%, which is on the low-side for Forestry stocks.
Next Steps:
Now you know to keep in mind the reason why investors should be careful investing in Canfor Pulp Products 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, 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. I’ve put together three essential factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for CFX’s future growth? Take a look at our free research report of analyst consensus for CFX’s outlook.
- Valuation: What is CFX 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 CFX is currently mispriced by the market.
- 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 editorial-team@simplywallst.com. 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.