Canadian Tire Corporation, Limited (TSE:CTC.A) Stock Goes Ex-Dividend In Just Four Days

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Canadian Tire Corporation, Limited (TSE:CTC.A) is about to go ex-dividend in just four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Accordingly, Canadian Tire Corporation investors that purchase the stock on or after the 31st of January will not receive the dividend, which will be paid on the 1st of March.

The company's next dividend payment will be CA$1.775 per share. Last year, in total, the company distributed CA$7.10 to shareholders. Calculating the last year's worth of payments shows that Canadian Tire Corporation has a trailing yield of 4.2% on the current share price of CA$167.57. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Canadian Tire Corporation has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Canadian Tire Corporation

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Canadian Tire Corporation is paying out an acceptable 60% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 28% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It's not encouraging to see that Canadian Tire Corporation's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Canadian Tire Corporation has delivered 14% dividend growth per year on average over the past 10 years.

The Bottom Line

Is Canadian Tire Corporation an attractive dividend stock, or better left on the shelf? It's unfortunate that earnings per share have not grown, and we'd note that Canadian Tire Corporation is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. To summarise, Canadian Tire Corporation looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Canadian Tire Corporation has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Canadian Tire Corporation that you should be aware of before investing in their shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.