Want to earn some extra income without having to actively work for it? Dividend-paying stocks can be a pretty interesting way to achieve that! These are shares of companies that regularly distribute a portion of profits to shareholders, kind of like getting little cash bonuses just for owning the stock. One such stock that has been generating some buzz among income-focused investors is KP Tissue (TSX:KPT). KPT offers a rather attractive dividend yield of approximately 9.2%, with an annual dividend payout of $0.72 per share. That’s a significant yield that can definitely catch an investor’s eye!
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Why KPT
Now, let’s delve a bit deeper into what KP Tissue is all about. It holds a significant 12.5% ownership stake in Kruger Products Inc., which is a major player in and actually the leading manufacturer of quality tissue products right here in Canada. Kruger Products caters to both the consumer market and the away-from-home market. The fact that KPT has a stake in such a dominant and recognizable consumer goods company adds a layer of stability to its investment profile, as these are products that people use consistently, regardless of economic ups and downs.
Looking at the most recent financial performance of Kruger Products, in the fourth quarter of 2024, it reported revenue of $539.6 million. That’s a pretty impressive increase of 11.9% compared to the revenue generated during the same period in 2023. This growth in revenue suggests that Kruger Products’ underlying business is healthy and there’s a strong demand for its products. Additionally, Kruger Products’ adjusted earnings before interest, taxes, depreciation and amortization (EBTIDA) was $66.8 million, showing a solid year-over-year increase of 9.2%. This indicates that the dividend stock is not only selling more but also becoming more efficient in its operations.
However, it’s important to note that despite this revenue growth and improved operating profitability, Kruger Products did report a net loss of $13.7 million for that same quarter. Net losses can occur for various reasons, such as increased costs, interest expenses, or one-time charges, and it’s something investors in KPT should be aware of and investigate further to understand the underlying causes and potential impact on future profitability.
A solid dividend stock
KP Tissue itself has maintained a consistent dividend payout of $0.18 per share on a quarterly basis. Its consistent dividend payment history can be reassuring for income-seeking investors who value a predictable stream of cash flow from their investments. However, while that high dividend yield of over 9% might initially seem like a very attractive reason to invest, it’s crucial to dig a little deeper and consider the sustainability of those payments.
Here’s where the dividend payout ratio comes into play. For KPT, this ratio stands at a very high 286.6%. A payout ratio that exceeds 100% can be a red flag for investors, as it suggests that the company might be using cash reserves or borrowing to fund its dividend payments. For now, investors can still gain a strong dividend, so let’s see how much a $5,000 investment could create.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | TOTAL INVESTMENT |
| KPT | $7.66 | 653 | $0.72 | $470.16 | monthly | $5,000 |
Bottom line
KP Tissue presents a compelling case for income-focused investors due to its high dividend yield and connection to a well-known and stable consumer goods business through its stake in Kruger Products. However, the alarmingly high dividend payout ratio, coupled with the recent net loss reported by Kruger Products, warrants a significant degree of caution and thorough investigation.
As with any investment decision, especially one that appears to offer unusually high yields, it is absolutely essential for investors to conduct their own comprehensive due diligence, carefully assess the underlying financial health and sustainability of the company’s dividend payments, and thoroughly consider their own individual risk tolerance and investment objectives before making any investment commitments. With this dividend stock, prudent investors could earn $470.16, or $39.18 each and every month.
