U.S. Markets closed

Why Income Investors Should Have IGM Financial Inc. (TSE:IGM) In Their Portfolio

Simply Wall St

IGM Financial Inc. (TSE:IGM) is a true Dividend Rock Star. Its yield of 6.4% makes it one of the market's top dividend payer. In the past ten years, IGM Financial has also grown its dividend from CA$2.05 to CA$2.25. Below, I have outlined more attractive dividend aspects for IGM Financial for income investors who may be interested in new dividend stocks for their portfolio.

See our latest analysis for IGM Financial

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:

  • It is paying an annual yield above 75% 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 can afford to pay the current rate of dividends from its earnings
  • It is able to continue to payout at the current rate in the future

High Yield And Dependable

The company's dividend yield stands at 6.4%, which is high for Capital Markets stocks. But the real reason IGM Financial 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.

TSX:IGM Historical Dividend Yield, August 23rd 2019

If there's one type of stock you want to be reliable, it's dividend stocks and their stable income-generating ability. In the case of IGM it has increased its DPS from CA$2.05 to CA$2.25 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.

IGM Financial has a trailing twelve-month payout ratio of 74%, which means that the dividend is covered by earnings. In the near future, analysts are predicting lower payout ratio of 66% which, assuming the share price stays the same, leads to a dividend yield of 6.4%. However, EPS should increase to CA$3.33, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.

Next Steps:

There aren't many other stocks out there with the same track record as IGM Financial, so I would certainly recommend further examining the stock if its dividend characteristics appeal to you. However, given this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company's fundamentals and underlying business before making an investment decision. I've put together three key factors you should further examine:

  1. Future Outlook: What are well-informed industry analysts predicting for IGM’s future growth? Take a look at our free research report of analyst consensus for IGM’s outlook.
  2. Valuation: What is IGM 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 IGM is currently mispriced by the market.
  3. Other Dividend Rockstars: Are there strong dividend payers with better fundamentals out there? Check out our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.