A 3.9% Dividend Stock That Looks Safer Than It Seems

A safe dividend stock usually has a few simple things working in its favour. It needs a business that keeps bringing in cash even when the economy gets messy, a payout ratio that leaves room for error, and a balance sheet that does not look stretched. A long dividend history helps too, but the real test is whether the company can still cover its payout when growth cools. That is where this dividend stock starts to get interesting.

TCL.A

Transcontinental (TSX:TCL.A) is no longer just the old-school printing name some investors remember. After selling its packaging business, it is now focused on retail services and printing, along with educational publishing. That makes it a more streamlined company, but also a more focused one. In March 2026, it closed the packaging sale to ProAmpac for cash proceeds of $2.1 billion, a huge shift that gives it a very different shape going forward.

That sale was the biggest piece of news over the last year, but it was not the only one. In fiscal 2025, Transcontinental also completed three acquisitions tied to its in-store marketing activities, showing management still wants growth even as it reshapes the business. Then in March 2026, it announced Sam Bendavid would become chief executive officer in April, another sign that the dividend stock is entering a new chapter rather than simply shrinking itself.

Safer dividend stocks do not need exciting stories. They need workable ones. Transcontinental now looks a bit simpler, a bit less leveraged, and more focused on businesses where it thinks it can defend margins and keep generating cash. Management has already said the packaging sale should reduce net indebtedness significantly in 2026, and that is exactly the kind of boring update income investors should like.

Into earnings

Now to the numbers. For fiscal 2025, Transcontinental reported revenue of $2.7 billion, operating earnings of $264.1 million, and net earnings attributable to shareholders of $171 million, or $2.04 per share. Adjusted net earnings came in at $217.2 million, or $2.59 per share. Adjusted operating earnings before depreciation and amortization were $466.2 million. Those are solid results for a dividend stock with a market cap of roughly $2 billion, especially since adjusted earnings per share rose 10.7% year over year.

The latest quarter was softer, which is worth noting. In the first quarter of fiscal 2026, revenue from continuing operations rose 2.3% to $263.5 million, but adjusted operating earnings before depreciation and amortization fell 17.9% to $33.1 million. Adjusted net earnings from continuing operations slipped to $6.7 million, or $0.08 per share. That is not thrilling. Still, management said it expects fiscal 2026 adjusted operating earnings before depreciation and amortization from continuing operations to stay roughly in line with fiscal 2025, even after a challenging start to the year.

Valuation helps the case. The shares recently traded around $23, with a trailing price-to-earnings ratio near 11.7 and a payout ratio around 45%. That combination is a big part of why this dividend looks safer than it seems. Investors are not paying a premium multiple, and the dividend does not appear stretched based on trailing earnings. Add in the expected deleveraging after the packaging sale, and the margin for error looks better than many higher-yield names on the TSX. The risk, of course, is that printing and retail marketing are not exactly high-growth markets, so Transcontinental still needs to execute well. But in the meantime, investors can grab a dividend stock with a solid 3.9% dishing out plenty of income with a $7,000 investment.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENTTCL.A$23.02304$0.90$273.60Quarterly$6,997.08

Bottom line

Transcontinental is not the kind of dividend stock that wins by dazzling anyone. It wins by looking steadier than the market first assumes. The business is changing, debt should come down, the valuation is reasonable, and the dividend still looks covered. That does not make it perfect, but it does make this 3.9% yielder look a lot safer than its quiet reputation might suggest.

The post A 3.9% Dividend Stock That Looks Safer Than It Seems appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Transcontinental. The Motley Fool has a disclosure policy.