Canadian Tire Corporation (TSE:CTC.A) Is Paying Out A Larger Dividend Than Last Year

By
Simply Wall St
Published
May 20, 2022
TSX:CTC.A
Source: Shutterstock

Canadian Tire Corporation, Limited (TSE:CTC.A) has announced that it will be increasing its dividend on the 1st of September to CA$1.63. This takes the dividend yield to 3.2%, which shareholders will be pleased with.

See our latest analysis for Canadian Tire Corporation

Canadian Tire Corporation's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, Canadian Tire Corporation's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 4.4% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 33%, which we are pretty comfortable with and we think is feasible on an earnings basis.

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TSX:CTC.A Historic Dividend May 20th 2022

Canadian Tire Corporation Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The first annual payment during the last 10 years was CA$1.10 in 2012, and the most recent fiscal year payment was CA$6.50. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Canadian Tire Corporation has seen EPS rising for the last five years, at 15% per annum. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Canadian Tire Corporation Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. 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 Canadian Tire Corporation that investors should take into consideration. Is Canadian Tire Corporation not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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