Are you looking to boost your income with a reliable dividend stock in Canada that has strong financial growth potential, an attractive long-term track record of increasing dividends, and a reliable payout history? If so, you might want to consider investing in Transcontinental (TSX: TCL.A). This Montréal-based printing and packaging firm operates in various sectors, including retail, magazines, books, and flyer production.
In this article, I’ll explain why Transcontinental is one of my top dividend stock picks for instant income by showing how it’s continuing to grow its earnings despite the ongoing macroeconomic challenges.
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Why Transcontinental is a great dividend stock
If you don’t know it already, Transcontinental currently has a market cap of $1.3 billion as its stock trades at $14.87 per share after surging by 42.2% over the last eight months. Despite the recent rally in its share prices, this top Canadian dividend stock still offers a juicy 6.1% annualized dividend yield and distributes these dividend payouts on a quarterly basis.
Two of the key factors that make Transcontinental a very reliable dividend stock to buy now and hold for the long term are its strong cash flow generation and geographically well-diversified business with a strong presence across North America, especially in the United States. These factors could be the main reasons that have helped it maintain a 7.5% dividend growth CAGR (compound annual growth rate) between its fiscal years 2010 to 2023. This solid growth CAGR also indicates that the Canadian packaging company’s management is confident about its future growth prospects and is committed to rewarding its loyal shareholders.
Strong earnings growth despite economic challenges
Lower volumes in its main operating sectors have taken a toll on Transcontinental’s revenue growth over the past year. In the last 12 months, the company’s total revenue fell 5.1% YoY (year over year) to $2.9 billion. Nevertheless, its adjusted earnings during the same period jumped by roughly 12% YoY to $2.29 per share as the management has been able to successfully implement cost reduction strategies, leading to a favourable product mix and operational efficiencies.
Transcontinental has been actively pursuing a two-year program aimed at enhancing profitability and strengthening its financial position. By the end of fiscal 2024, the company expects recurring annual savings of approximately $30 million from these initiatives. This was one of the reasons why the company’s adjusted earnings in the first half (ended in April 2024) of the fiscal year 2024 alone climbed by a solid 37.7% YoY to $0.95 per share.
Solid fundamental outlook
Transcontinental has remained focused on repaying debt in recent quarters and expects to generate significant cash flows in the second half of the ongoing fiscal year. Besides its effective cost-reduction measures, the company has also increased its focus on high-value-added products of late, which should help it expand profit margins in the long run and reward its investors with rising dividends. In addition to these fundamentals, Transcontinental’s stock price has the potential to rally in the coming years, as I expect the company’s earnings growth to outpace most of its peers.
