Stock Analysis

Transcontinental's (TSE:TCL.A) Dividend Will Be CA$0.225

TSX:TCL.A
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Transcontinental Inc. (TSE:TCL.A) has announced that it will pay a dividend of CA$0.225 per share on the 24th of July. The dividend yield will be 6.1% based on this payment which is still above the industry average.

Check out our latest analysis for Transcontinental

Transcontinental's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Transcontinental was earning enough to cover the previous dividend, but it was paying out quite a large proportion of its free cash flows. By paying out so much of its cash flows, this could indicate that the company has limited opportunities for investment and growth.

Looking forward, earnings per share is forecast to fall by 6.7% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 75%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

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TSX:TCL.A Historic Dividend June 13th 2023

Transcontinental Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from CA$0.58 total annually to CA$0.90. This works out to be a compound annual growth rate (CAGR) of approximately 4.5% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 16% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Our Thoughts On Transcontinental's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Transcontinental's payments, as there could be some issues with sustaining them into the future. While Transcontinental is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Transcontinental that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.