With an 8.3 Percent Dividend Yield, Is it Time to Buy Transcontinental Stock?

Does Transcontinental stock’s impressive dividend yield make it worth considering right now? Let’s find out.

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Transcontinental (TSX:TCL.A) stock is trading on a bearish note in 2023. The stock has lost more than 30% of its value so far this year to trade at $10.52 per share with $922 million market capitalization.

However, the recent big losses in Transcontinental stock have made its dividend yield look more attractive, which currently stands at 8.3% on an annualized basis. Before we discuss whether it’s a good time to buy its shares to rake in this impressive yield, let’s quickly review the main factors that have driven the stock lower in 2023.

Main factors affecting Transcontinental’s business in recent years

If you don’t know it already, Transcontinental is a Montréal-headquartered firm that primarily focuses on providing various packaging options and printing services to businesses. The company makes a large portion of its revenue from North America, with the United States being its largest market.

Notably, 2023 is the third consecutive year when Transcontinental stock is trading on a weak note. It witnessed a big selloff in the March 2020 quarter with growing fears that the COVID-19 pandemic could badly affect its business operations and financial growth. Nonetheless, its better-than-expected financial performance in the next few quarters helped its stock recover sharply from these losses. Despite facing global pandemic-related operational challenges and lower revenues, the company’s adjusted earnings in its fiscal year 2020 (ended in October 2020) rose 4% YoY (year over year). As a result, Transcontinental stock ended the turbulent calendar year 2020 with strong 29.2% gains.

However, negative factors like reduced Canada Emergency Wage Subsidy in the post-pandemic period, currency headwinds, and increased resin prices in the second half of its fiscal year 2021 (ended in October 2021) badly affected its bottom line. This is one of the key reasons why its stock fell 1% in the calendar year 2021.

As rapidly rising interest rates and high inflationary pressures have affected its business growth in 2022 and 2023, Transcontinental’s share prices have seen about 48% value erosion since the end of calendar year 2021.

Is Transcontinental stock worth buying now?

While recent declines in Transcontinental stock have made its dividend yield look attractive, investors should avoid making final investment decisions solely based on a stock’s dividend yield.

In the first three quarters (ended in July) of its fiscal year 2023, Transcontinental’s revenue has remained flat on a YoY basis, but its adjusted earnings have slipped by more than 14%. The company has increased the pricing of its products and services in recent quarters to reduce the negative impact of high inflation on its business. While higher pricing has helped it protect profits to some extent, it has led to lower volume as its customers also seem to be more sensitive to pricing amid macroeconomic challenges. Given these tough business conditions, Transcontinental’s financial growth might remain dismal in the near term, which has the potential to keep its share prices highly volatile in the near term.

Nonetheless, we shouldn’t forget that most of the challenges Transcontinental has faced in recent years are external and largely temporary. And I expect its financial growth trends to improve significantly as soon as the ongoing macroeconomic concerns gradually subside. That’s why Transcontinental stock could still be worth considering on the dip for the long term, despite expectations of short-term volatility.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

The Motley Fool recommends Transcontinental. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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