We all want to beat the TSX, but how are you supposed to do that over and over again? Think longevity. This is why today we’re looking at Labrador Iron Ore Royalty (TSX:LIF). The dividend stock has long been a darling for Canadian dividend investors, and for good reason. Even though iron ore prices have been rocky, LIF’s strategic positioning in the market has helped it consistently reward shareholders with high dividend payouts. So, if you’re eyeing a stock that might just beat the TSX, LIF is worth a closer look. Here’s why.
Into earnings
In its recent earnings for the third quarter (Q3) of 2024, LIF stock faced challenges like lower iron ore prices and pellet premiums, which trimmed down its revenue. But even with these headwinds, LIF still maintained its cash flow in a way that kept dividends stable. Its Q3 royalty revenue came in at $41.5 million, down 12% year over year. However, the company’s careful management of cash reserves meant it still issued a dividend of $0.53 per share, holding onto that 9% yield that dividend investors love.
LIF’s price-to-earnings ratio is currently 9.63. This is quite attractive compared to the TSX’s price-to-earnings (P/E) ratios in many sectors. This low P/E shows that LIF remains a value stock in a market where value is increasingly hard to find. Despite fluctuations in its market cap, which currently stands at $1.87 billion, LIF offers a forward P/E of just 7.94, suggesting potential for solid growth down the line.
The performance
When it comes to the past, LIF’s strong history is in its dividends. Over the last five years, its average yield has been an impressive 9.51%, easily outpacing the returns of the broader TSX. This yield stability, paired with its steady payout history, makes it a dependable income stream, especially in volatile market times.
Now, let’s talk future outlook. Iron ore prices have dipped recently due to global shifts in steel production, with steel output down by 6% in Q3 2024. Still, demand for iron ore is likely to bounce back as infrastructure projects grow worldwide, particularly in emerging economies. For LIF, this could mean a return to higher royalty revenues and more dividend strength.
The company’s dividend yield stands at a forward rate of 9.22%, a significant edge over typical TSX yields. This payout ratio is currently at 88.82%, which might seem high but aligns with LIF’s commitment to returning income to shareholders. The high payout ratio signals a management team focused on maximizing investor returns rather than hoarding cash.
Bottom line
LIF’s recent 52-week range between $28.48 and $33.97 shows moderate volatility, yet the company’s fundamentals remain solid. With average volumes relatively stable around 255k, LIF enjoys liquidity that many TSX stocks lack. This liquidity can provide some reassurance in times of market stress, giving investors an easier exit if needed.
LIF is a classic dividend stock that doesn’t just match the TSX. It has the potential to beat it thanks to its strong dividend yield, operational efficiency, and valuable royalty-based revenue. If you’re looking for a steady income stream with a chance to outperform, LIF might just be the TSX star you’ve been waiting for.
