Canadian Tire (TSX:CTC.A) has long been a staple in Canadian retail, but the specialty retailer’s appeal goes beyond its strong brand recognition and storied history. For Canadian dividend investors, the company recently announced a 1.4% increase to its quarterly payout for 2025, bringing Canadian Tire stock’s annual dividend to $7.10 per share, offering a compelling 4.6% yield. But is the stock worth buying now, particularly for those looking to preserve capital while earning steady passive income?
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Canadian Tire stock exhibits stability in a challenging consumer landscape
Canadian Tire stock has shown remarkable resilience despite a challenging economic environment. Consumers continue to tighten their spending due to high interest rates and subdued confidence, leading to lower retail sales. However, the company has effectively navigated these challenges by focusing on essentials, leveraging its loyalty programs, and managing costs.
In its third-quarter results, Canadian Tire reported normalized earnings per share (EPS) of $3.59, up 21% from the same period last year, even as retail revenue dipped slightly. The growth in EPS was partly attributed to operational improvements, including strong cost controls and better margin management. These measures highlight management’s capability to adapt and maintain profitability in uncertain times.
A strong case for dividend growth and safety
Canadian Tire’s latest dividend raise marks 15 years of consecutive dividend growth and solidifies the retailer’s reputation as a Canadian Dividend Aristocrat of choice for passive-income-oriented dividend stock investors.
A key consideration for dividend investors is the sustainability of the payout. Canadian Tire’s earnings payout ratio sits at a manageable 60%, while the free cash flow payout ratio for the past 12 months is just 29.2%. This suggests the company has ample room to maintain and grow its dividend, even during downturns.
The company’s robust cash generation further underscores the safety of its dividend. Year to date, Canadian Tire has generated $700 million more in operating cash flow compared to the previous year, thanks to improved working capital and disciplined cost management. This cash flow strength has also enabled the company to reduce its borrowing exposure and invest in store renovations, ensuring long-term competitiveness.
Management’s intention to repurchase up to $200 million in shares during 2025 adds another layer of shareholder value. Combined with the dividend increase, these actions reflect confidence in the company’s financial health.
Canadian Tire could be an undervalued dividend-growth play
Canadian Tire’s forward price-to-earnings (P/E) ratio of 11.6 and long-term earnings growth outlook of 12% suggest the stock might be undervalued. With a price-to-earnings-to-growth (PEG) ratio below one, the shares appear attractively priced relative to their future growth potential. This potential undervaluation provides an added incentive for investors who prioritize capital appreciation alongside income.
Risks to consider on CTC stock
While Canadian Tire stock offers a compelling dividend yield and strong fundamentals, risks remain. The Canadian economy faces headwinds, including declining gross domestic product (GDP) per capita, rising business insolvencies, and a challenging mortgage renewal cycle. These factors could weigh on consumer spending and impact Canadian Tire’s top-line growth in the near term.
Moreover, while the company’s retail operations are resilient, it remains exposed to broader economic shifts in its consumer discretionary segments. The cyclical nature of consumer discretionary spending poses risks in the short term, and management is justified to remain cautiously optimistic even as the recent interest rate decreases, which offers stressed consumers some breathing room and a sigh of relief.
Investor takeaway
Canadian Tire stock’s 4.6% dividend yield, backed by 15 consecutive years of dividend growth and a solid payout ratio, positions the stock as a strong candidate for income-focused investors. Its operational resilience, prudent cash management, and shareholder-friendly policies offer additional assurance for potential capital gains.
However, investors should weigh these strengths against broader economic risks. For those with a long-term perspective, Canadian Tire’s combination of income and growth potential makes it a worthy addition to a dividend portfolio. If you’re seeking stable passive income and are comfortable navigating some short-term economic uncertainties, Canadian Tire stock might just be a buy for 2025 and beyond.
