Investing in monthly dividend stocks is a low-cost strategy to begin a passive-income stream. However, unlike interest payments, dividends are not guaranteed and can be suspended at any time, especially if the company’s financials deteriorate. For instance, oil companies such as Suncor Energy were forced to slash their dividends when crude oil prices fell off a cliff at the onset of COVID-19. Similarly, debt-heavy companies such as Algonquin Power & Utilities and Northwest Healthcare also lowered their dividend payouts in the last 18 months due to interest rate hikes.
So, it’s crucial to identify a portfolio of dividend stocks that can generate cash flows across market cycles. Basically, a company should generate enough cash flow to service its debt, pay shareholders a dividend, and invest in organic growth or acquisitions.
Here’s one such dividend stock, which has an attractive yield of 7.4% and a monthly payout.
An overview of Decisive Dividend Corp.
Valued at a market cap of $140 million, Decisive Dividend (TSXV: DE) pays shareholders a monthly dividend of $0.045 per share, indicating a yield of 7.4%.
Decisive Dividend is an acquisition-oriented company focused on opportunities in the manufacturing sector. It aims to provide an exit strategy for legacy-minded business owners while ensuring the long-term success of these businesses.
Decisive Dividend uses a disciplined acquisition strategy to identify profitable, quality manufacturing companies that enjoy a sustainable competitive advantage, with a focus on non-discretionary products, steady cash flows, and growth potential.
How did Decisive Dividend perform in Q1 of 2024?
Decisive Dividend reported sales of $29.4 million in the first quarter (Q1) of 2024, down 5% year over year. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood at $4 million or $0.21 per share, down 19% year over year.
The company attributed lower Q1 sales to hearth products, with backlogs lower than in 2023. Moreover, higher operating expenses drove EBITDA margins lower in the March quarter.
Decisive Dividend ended Q1 with a debt-to-EBITDA ratio of 2.1 times, which is reasonable. With $4.1 million in cash and $43.2 million in syndicated credit facilities, Decisive Dividend has enough flexibility to target profitable acquisitions in the next 12 months.
It recently announced the acquisition of Techbelt, which would add another recurring, high-margin, capital-light wear-parts business to its portfolio. Decisive Dividend emphasized, “The number of acquisition opportunities we are seeing that fit within the profile of our current portfolio of businesses continues to be robust, and we remain well positioned with respect to available capacity under our credit facility to fund acquisitions.”
Its free cash flow fell by 36% to $1.9 million or $0.10 per share in Q1, causing its payout ratio to increase to 66% in the last 12 months, up from 54% in 2023. Decisive Dividend attributed its lower payout ratio to its dividend hike, which increased from $0.035 per share to $0.045 per share in the last 12 months.
What is the target price for Decisive Dividend stock?
In the last nine years, Decisive Dividend has completed 13 acquisitions. In fact, it has acquired eight companies in the last two years, allowing it to grow sales by 29% annually between 2015 and 2023. In this period, its EBITDA has grown by 33% annually, while free cash flow growth was marginally higher at 34%.
Analysts tracking the dividend stock expect it to end 2025 with adjusted earnings of $0.46 per share, indicating a forward earnings multiple of 15.7 times. Bay Street expects the stock to surge over 32% in the next 12 months. After adjusting for its dividends, cumulative returns could be closer to 40%.
