Investors who want to cash in on TransCanada Corporation’s (TSE:TRP) upcoming dividend of CA$0.69 per share have only 3 days left to buy the shares before its ex-dividend date, 27 September 2018, in time for dividends payable on the 31 October 2018. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at TransCanada’s most recent financial data to examine its dividend characteristics in more detail.
What Is A Dividend Rock Star?
It is a stock that pays a consistent, reliable and competitive dividend over a long period of time, and is expected to continue to pay in the same manner many years to come. More specifically:
- Its annual yield is among the top 25% of dividend payers
- It has paid dividend every year without dramatically reducing payout in the past
- Its dividend per share amount has increased over the past
- It is able to pay the current rate of dividends from its earnings
- It has the ability to keep paying its dividends going forward
High Yield And Dependable
TransCanada currently yields 5.2%, which is high for Oil and Gas stocks. But the real reason TransCanada stands out is because it has a high chance of being able to continue to pay dividend at this level for years to come, something that is quite desirable if you are looking to create a portfolio that generates a steady stream of income.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. In the case of TRP it has increased its DPS from CA$1.44 to CA$2.76 in the past 10 years. It has also been paying out dividend consistently during this time, as you’d expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
The current trailing twelve-month payout ratio for the stock is 77.7%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a higher payout ratio of 88.3%, leading to a dividend yield of 5.9%. Furthermore, EPS should increase to CA$3.5. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
With TransCanada producing strong dividend income for your portfolio over the past few years, you can take comfort in knowing that this stock will still continue to be a top dividend generator moving forward. However, given this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three essential aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for TRP’s future growth? Take a look at our free research report of analyst consensus for TRP’s outlook.
- Valuation: What is TRP worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TRP is currently mispriced by the market.
- Other Dividend Rockstars: Are there strong dividend payers with better fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.