As the common Canada Pension Plan (CPP) payout in 2024 is lower than $850, it’s evident that retirees must complement their earnings with extra sources. One low-cost option to start a passive-income stream is by investing in blue-chip dividend shares equivalent to Magna Worldwide (TSX:MG). As dividend payouts aren’t assured, it’s important to determine a portfolio of shares that may develop their dividend earnings every year, enhancing the yield-at-cost within the course of.
Let’s see how you should use this prime TSX dividend inventory to complement your retirement advantages.
An outline of Magna Worldwide
Valued at $15 billion by market cap, Magna Worldwide designs, engineers, and manufactures elements, assemblies, programs, subsystems, and modules for unique gear producers of autos and light-weight vehicles globally.
Down 58% from all-time highs, Magna Worldwide inventory has trailed the broader markets up to now decade. Since September 2014, it has trailed the broader markets by a large margin, returning lower than 11%, even after we alter for dividend reinvestments. Comparatively, the TSX index has greater than doubled investor returns on this interval.
Within the final three years, Magna Worldwide has wrestled with macro headwinds equivalent to provide chain disruptions, inflation, rising rates of interest, and slowing vehicle demand. Nonetheless, the pullback means that you can purchase the dip and profit from outsized features when market sentiment improves.
How did Magna Worldwide carry out in Q2 of 2024?
Within the second quarter (Q2) of 2024, Magna Worldwide carried out in step with expectations, with gross sales of US$11 billion and an adjusted EBIT (earnings earlier than curiosity and tax) margin of 5.3%. Its concentrate on operational effectivity ought to enable it to broaden margins by 75 foundation factors by the top of 2025.
Magna Worldwide stays centered on capital self-discipline and powerful free money stream technology. For instance, the corporate lowered its capital expenditures by US$200 million for 2024 and expects free money stream to vary between US$600 million and US$800 million this yr.
Magna Worldwide presently pays shareholders an annual dividend of $2.56 per share, which interprets to a ahead yield of 4.9%. Given its excellent share rely, the corporate’s dividend payout will probably be roughly $750 million within the subsequent 12 months, suggesting its payout ratio is kind of excessive.
Nonetheless, analysts overlaying Magna Worldwide count on adjusted earnings to broaden from $7.44 per share in 2024 to $8.69 per share in 2025. So, priced at six instances ahead earnings, Magna inventory is basically low-cost. Moreover, its earnings development ought to translate to money stream enlargement within the subsequent 12 months, reducing the payout ratio and enhancing the Canadian firm’s monetary flexibility.
A concentrate on money stream and dividends
A better rate of interest setting and slower shopper spending have meant that Magna’s free money stream has fallen from US$2.5 billion in 2019 to US$830 million within the final 12 months. Ideally, free money stream enlargement permits the corporate to reinvest in acquisitions, decrease stability sheet debt, and lift dividends.
Within the final 10 years, Magna Worldwide has elevated its dividends by 10% yearly on common, which is phenomenal for an organization within the cyclical vehicle sector. Whereas its payout ratio is beneath strain, a number of charge cuts within the subsequent 12 months ought to increase its free money stream margin and share costs. Analysts stay bullish on Magna inventory and count on it to realize 40% within the subsequent 12 months.