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

Canadian Tire Corporation, Limited (TSE:CTC.A) will increase its dividend from last year's comparable payment on the 1st of March to CA$1.78. This takes the dividend yield to 4.6%, which shareholders will be pleased with.

Check out our latest analysis for Canadian Tire Corporation

Canadian Tire Corporation's Future Dividend Projections Appear Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Canadian Tire Corporation's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 18.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 58% by next year, which is in a pretty sustainable range.

Canadian Tire Corporation Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of CA$2.00 in 2014 to the most recent total annual payment of CA$7.10. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Canadian Tire Corporation's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Canadian Tire Corporation is struggling to find viable investments, so it is returning more to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

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. Earnings are easily covering distributions, and the company is generating plenty of cash. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Canadian Tire Corporation that investors need to be conscious of moving forward. 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.