When picking stocks, in most cases, there’s a trade-off between high capital gains and a high dividend yield. What if I told you there was a stock that could offer you terrific capital gains along with a high dividend yield that will grow each year? There is a stock that offers this, and it may be time to load up on shares if you’re an income investor that also cares about long-term capital appreciation.
Thomson Reuters Corp. (TSX:TRI)(NYSE:TRI) is a mass media and information company with eight divisions across the financial, media, legal, and science industries.
The stock truly offers the best of both worlds. It pays a very attractive 3.1% dividend yield and has upped the dividend each year over the last decade. The stock also managed to return huge capital gains to shareholders over the past five years, when the stock soared 114%. The company has a fantastic track record of putting cash back into the pockets of its shareholders.
The company continues to grow by leaps and bounds in its tax and accounting division, while its legal business continues to drive the top line. The company is a fantastic generator of free cash flow, which is returned back to shareholders in the form of an increased dividend.
In the Q3 2016 earnings report, Thomson Reuters reported an EPS of $0.54, which beat analyst expectations of $0.06. EBITDA grew by 10% for the financial segment, while the tax and accounting segment decreased by 2%. The stock responded positively to the earnings report by soaring 4.1%, but the company also announced that it would be laying off over 2,000 workers, which is approximately 4% of its workforce. I believe this is one of the downsides of being too investor friendly.
The payout ratio is at a whopping 81.1%, which is quite high and could limit the magnitude of future dividend increases. Although the company has increased its dividend each year over the last two decades, the magnitude of these increases is anything but impressive. The dividend was also slashed during the Great Recession, so it’s definitely not safe for the next economic downturn.
The stock currently trades at a 2.9 price-to-book multiple, which is much higher than the company’s five-year historical average multiple of 1.9. The dividend yield of 3.1% is also a lot lower than the company’s five-year historical average yield of 3.5%.
The stock isn’t cheap right now, but Foolish investors should keep this name on their radars and pick up shares during the next market sell-off.
