Avoid Brookfield Renewable on the Toronto Stock Exchange and Consider a Better Dividend Stock Option

Dividend stocks can be a key component of an income-oriented investment portfolio, offering the appeal of regular payouts. However, it is critical to assess the sustainability of these dividends. Companies with high payout ratios may not maintain their dividend payments over time, which could lead to financial difficulties or reduced dividend yields in the future. In this article, we will look at two Canadian stocks: one that presents a solid dividend opportunity and the other, Brookfield Renewable, which could pose risks due to its high payout ratio.

Top 10 Dividend Stocks in Canada

Click here to see the full list of 33 stocks in our TSX Top Dividend Stocks Analysis tool.

Here we highlight one of our favorite stocks from the screener and another that would be best avoided.

The best choice

Enghouse Systems

Simply Wall St Dividend Rating: ★★★★★☆

Preview: Enghouse Systems Limited, a global provider of enterprise software solutions, has a market capitalization of approximately C$1.69 billion.

Operations: The company generates revenue through two main segments: the asset management group, which generated revenue of CA$180.88 million, and the interactive management group, with revenue of CA$299.55 million.

Dividend yield: 3.4%

Enghouse Systems Limited has demonstrated strong financial performance with significant growth in revenue and net income as reported in its recent Q2 2024 results. The company maintains a healthy dividend policy as evidenced by the recent confirmation of a quarterly dividend of C$0.26 per share, supported by a sustainable payout ratio of 65.7% and a cash payout ratio of 45.8%, ensuring dividends are well covered by earnings and cash flow. This is in stark contrast to companies facing challenges due to high payout ratios, highlighting Enghouse’s prudent financial management and reliability as a dividend stock despite its lower yield compared to major payers in the market.

The story continues

To be reconsidered

Brookfield Renewable Energy

Simply Wall St Dividend Rating: ★★☆☆☆☆

Preview: Brookfield Renewable Corporation operates a diversified portfolio of renewable energy and sustainable solutions assets primarily in the United States, Europe, Colombia and Brazil, with a market capitalization of C$14.66 billion.

Operations: The company generates revenues primarily from hydroelectric power (C$1.26 billion), wind power (C$216 million), large-scale solar power (C$216 million) and distributed energy and sustainable solutions (C$137 million).

Dividend yield: 4.9%

Brookfield Renewable’s dividend sustainability is questionable with a cash payout ratio of 4,426.9%, indicating that dividends are not well supported by cash flow. Despite a recent recovery in net income to US$491 million from a previous loss and an increase in sales to US$1,125 million, the company’s projected average earnings decline of 38.2% per year over the next three years could put pressure on future payouts. Additionally, its dividend yield of 5.01% remains below the top quartile of Canadian dividend payers at 6.62%.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not factor in the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.

Companies discussed in this article include TSX:ENGH and TSX:BEPC.

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