Canadian Tire Corporation's (TSE:CTC.A) Upcoming Dividend Will Be Larger Than Last Year's

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 will take the annual payment to 4.4% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Canadian Tire Corporation

Canadian Tire Corporation's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Canadian Tire Corporation's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 20.2%. Assuming the dividend continues along recent trends, we think the payout ratio could be 57% by next year, which is in a pretty sustainable range.

Canadian Tire Corporation Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was CA$2.00 in 2015, and the most recent fiscal year payment was CA$7.10. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Canadian Tire Corporation May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, Canadian Tire Corporation's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.8% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

We Really Like Canadian Tire Corporation's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Canadian Tire Corporation that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.