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Canadian Tire Corporation, Limited (TSE:CTC.A) has pleased shareholders over the past 10 years, by paying out dividends. The company currently pays out a dividend yield of 2.9% to shareholders, making it a relatively attractive dividend stock. Let’s dig deeper into whether Canadian Tire should have a place in your portfolio.

View our latest analysis for Canadian Tire

5 checks you should do on a dividend stock

If you are a dividend investor, you should always assess these five key metrics:

• Is their annual yield among the top 25% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Will it have the ability to keep paying its dividends going forward?

How well does Canadian Tire fit our criteria?

The current trailing twelve-month payout ratio for the stock is 33%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 30% which, assuming the share price stays the same, leads to a dividend yield of 2.8%. In addition to this, EPS should increase to CA$12.29.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.

If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. CTC.A has increased its DPS from CA$0.84 to CA$4.15 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.

Compared to its peers, Canadian Tire has a yield of 2.9%, which is on the low-side for Multiline Retail stocks.

Next Steps:

Keeping in mind the dividend characteristics above, Canadian Tire is definitely worth considering for investors looking to build a dedicated income portfolio. Given that 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. Below, I’ve compiled three relevant aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for CTC.A’s future growth? Take a look at our free research report of analyst consensus for CTC.A’s outlook.

2. Valuation: What is CTC.A 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 CTC.A is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger 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 editorial-team@simplywallst.com.