Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, AutoCanada Inc (TSE:ACQ) has paid a dividend to shareholders. It currently yields 4.0%. Should it have a place in your portfolio? Let’s take a look at AutoCanada in more detail.
Here’s how I find good dividend stocks
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does AutoCanada fare?
AutoCanada has a negative payout ratio, meaning that the company is not yet profitable and is paying dividend by dipping into its retained earnings.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Dividend payments from AutoCanada have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, AutoCanada produces a yield of 4.0%, which is high for Specialty Retail stocks but still below the market’s top dividend payers.
After digging a little deeper into AutoCanada’s yield, it’s easy to see why you should be cautious investing in the company just 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, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three important aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for ACQ’s future growth? Take a look at our free research report of analyst consensus for ACQ’s outlook.
- Valuation: What is ACQ 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 ACQ 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.