The Canadian stock market posted a fresh all-time high last week as optimism surrounding the recent interest rate cuts in Canada and growing rate cut hopes in the United States have boosted investors’ confidence. Investors expect lower interest rates to boost economic growth and consumer demand, which could lead to financial growth for businesses.
Despite the market rally, some fundamentally strong stocks are currently trading close to their lowest levels in many years due mainly to industry-specific challenges. In this article, I’ll highlight one such attractive Canadian dividend stock you can consider right now, which has the potential to yield outstanding returns on investments in the long run.
A magnificent Canadian dividend stock to buy now
The automotive industry was among the hardest hit by the global pandemic in 2020. While in recent years, the demand for vehicles has recovered sharply, the industry still continues to face challenges due to the ongoing shift in consumer preferences, supply chain issues amid growing geopolitical tensions, and labour shortages.
However, despite these hurdles, Magna International (TSX:MG) has maintained its position as one of the top global automotive suppliers. This Aurora-headquartered auto parts and mobility technology company currently has a market cap of $15.7 billion as its stock trades at $54.70 per share after sliding by nearly 30% so far in 2024.
At current levels, MG stock also offers an attractive 4.8% annualized dividend yield and distributes its dividend payouts every quarter. More importantly, its impressive dividend growth track record makes its stock even more appealing for income-focused investors. To give you an idea about that, in the five years between 2018 and 2023, the company raised its dividend per share by around 39% despite facing global pandemic-driven operational challenges in between.
Now, let’s quickly look at its recent financial growth trends and fundamental outlook to understand why Magna International could be a great long-term buy.
Short-term challenges but solid long-term growth outlook
In recent quarters, factors such as fluctuations in global automotive production, currency headwinds, and reduced complete vehicle assembly volumes have affected Magna’s financial growth, which explains why its share prices have gone down of late. Despite these challenges, the company’s total revenue remained nearly flat on a YoY (year-over-year) basis in the June quarter at US$11 billion. These negative factors, coupled with higher warranty costs, led to a 10% YoY decline in its adjusted quarterly earnings to US$1.35 per share. On the positive side, Magna’s consistent focus on cost control and operational efficiency helped soften the impact of these negative factors on its bottom line.
Although slower-than-expected demand for electric vehicles in North America is likely to continue affecting Magna’s revenue growth in the near term, its well-diversified business model, focus on technological solutions for autonomous vehicles, and strong financial base give it the ability to weather these short-term challenges and brighten its long-term growth outlook.
In addition, lower interest rates, which are expected to stimulate economic growth and consumer spending, could indirectly benefit Magna by boosting automotive demand. Considering these factors, this top dividend stock looks really attractive to buy on the dip now and hold for years to come.
