When finding valuable dividend stocks, there are key factors to consider to ensure your investments deliver both steady income and potential long-term growth. Start with the dividend yield, but don’t stop there. A high yield might be tempting, but it’s crucial to check if the company’s earnings can sustain its payouts. A payout ratio below 60% is often a good indicator of sustainability — but so too can a share price that’s dropped from 52-week highs.
That’s why today we’re looking at Richards Packaging Income Fund (TSX:RPI.UN). The stock has a manageable payout ratio of 39.76%, suggesting room for dividend stability or even growth, along with shares down 11% in the last year.
What to watch
But how can investors know they’re really getting a deal? A critical aspect is a dividend stock’s financial health. A solid balance sheet with manageable debt levels ensures the company can weather economic challenges. RPI.UN has a reasonable debt-to-equity ratio of 26.07% and a current ratio of 1.63, demonstrating its ability to meet short-term obligations. Companies with lower debt levels are generally better positioned to maintain dividends during tough times.
Historical performance is equally important. Examining RPI.UN, the dividend stock has remained relatively stable with a beta of 0.47, which indicates lower volatility compared to the broader market. Over the last 52 weeks, the stock has traded between $27.56 and $35.42. Its current price of $31.50 sits closer to the lower end of that range, presenting a potential buying opportunity for value-focused investors.
Future growth prospects and earnings potential are also essential. Richards Packaging recently reported trailing 12-month (TTM) earnings of $3.32 per share, with a trailing price-to-earnings (P/E) ratio of 9.42. Below the sector average. This valuation indicates the dividend stock may be undervalued, offering an attractive entry point for investors seeking income and potential capital appreciation.
Considerations
Richards Packaging’s recent earnings highlight some challenges, such as a year-over-year revenue decline of 3.7% and a quarterly earnings dip of 13.5%. However, the dividend stock maintains strong profitability metrics, including a 9.08% profit margin and a return on equity (ROE) of 20.26%. These figures underscore the company’s efficiency in generating returns for shareholders, even during periods of softer revenue.
When assessing dividend stocks, keep an eye on industry trends. As a packaging supplier, RPI.UN benefits from stable demand across various sectors. While short-term pressures like inflation and supply chain constraints can affect margins, the long-term need for packaging solutions positions the dividend stock for consistent performance.
The dividend itself is a significant factor. RPI.UN offers a forward annual dividend yield of 4.22%, well above the five-year average of 3.00%. With a history of consistent payouts, the fund appeals to income-focused investors. Its recent dividend date of January 14, 2025, and an upcoming ex-dividend date of January 31, 2025, make it an attractive option for those looking to lock in income soon.
Bottom line
Another point to consider is insider and institutional ownership. With 25.78% of shares held by insiders and 29.80% by institutions, there’s confidence in the company’s future. Insider ownership aligns management interests with those of shareholders, while institutional involvement often brings stability.
Finally, look for diversification benefits within your portfolio. RPI.UN operates in a niche but essential sector, making it a good complement to traditional dividend stocks in banking, energy, or telecommunications. This diversification can help cushion your portfolio during sector-specific downturns.
Richards Packaging Income Fund stands out as a strong option for dividend investors, particularly given its stable financials, attractive valuation, and reliable payouts. While its revenue and earnings have faced recent challenges, its profitability and lower volatility make it a compelling dividend stock for long-term income and value seekers.
