Canadian Tire Corporation (TSE:CTC.A) Will Pay A Dividend Of CA$1.75

The board of Canadian Tire Corporation, Limited (TSE:CTC.A) has announced that it will pay a dividend on the 1st of June, with investors receiving CA$1.75 per share. This makes the dividend yield 5.3%, which is above the industry average.

View our latest analysis for Canadian Tire Corporation

Canadian Tire Corporation'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. Prior to this announcement, the company was paying out 183% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 57%. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.

Looking forward, earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 36%, which would make us comfortable with the dividend's sustainability, despite the levels currently being elevated.

Canadian Tire Corporation Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was CA$1.40, compared to the most recent full-year payment of CA$7.00. This means that it has been growing its distributions at 17% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Canadian Tire Corporation's EPS has fallen by approximately 19% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Our Thoughts On Canadian Tire Corporation's Dividend

Overall, we always like to see the dividend being raised, but we don't think Canadian Tire Corporation will make a great income stock. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Canadian Tire Corporation is a great stock to add to your portfolio if income is your focus.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 4 warning signs for Canadian Tire Corporation (1 is concerning!) that you should be aware of before investing. 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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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.