A Dividend Stock Down 34% That’s Worth Holding Indefinitely

Magna International (TSX:MG) has had a rough stretch in recent years, with the Canadian stock down roughly 34% from its peak.

But if you look past the price drop and dig into the fundamentals, this is a company that is still generating billions in free cash flow, has raised its dividend for 16 straight years, and is expanding margins in a difficult environment.

I think this is a top dividend stock worth holding indefinitely.

What Magna does, and why it matters

Magna is one of the largest automotive suppliers in the world.

It designs and manufactures a range of automotive products, from body structures and seating systems to mirrors, battery enclosures, and complete vehicles. Unlike most suppliers that specialize in one area, Magna operates across multiple major vehicle systems.

As Magna Chief Financial Officer Phil Fracassa explained at the Bank of America Global Automotive Summit in March 2026, more than 80% of the company’s portfolio is agnostic to powertrain configuration.

It means body parts, seating, mirrors, chassis components, and ADAS (advanced driver assistance systems) are required whether a vehicle runs on gasoline, has a hybrid drivetrain, or is fully electric.

Despite a challenging environment, Magna generated US$1.9 billion in free cash flow (FCF) in 2025. The management forecasts FCF to range between US$1.6 billion and US$1.8 billion this year, driven by higher capital spending. Priced at 9.8 times forward FCF, the TSX stock trades at an attractive multiple, given its dividend yield of 3.3%.

With an annual dividend expense of roughly US$550 million, Magna has a sustainable payout ratio of 30%.

A focus on the bottom line

Magna’s adjusted EBIT (earnings before interest and tax) margin is expected to land between 6% and 6.6% in 2026, an increase of 70 basis points year over year at the midpoint.

The key driver of profit margins is a company-wide push, Magna calls operational excellence, which includes thousands of continuous improvement projects across its more than 350 plants worldwide, as well as a larger initiative called Factory of the Future.

That program involves automating plants, digitizing 140 facilities onto a single architecture for real-time monitoring, and deploying additional automated material-handling equipment.

Through 2025, these efforts generated approximately 150 basis points of net margin improvement. By the end of 2026, that number is expected to reach nearly 200 basis points over four years.

The dividend and the buyback

Magna has raised its dividend for 16 consecutive years, which means it has survived multiple recessions, a global pandemic, a semiconductor shortage, and a wave of electric vehicle-related capital spending.

Additionally, Magna plans to repurchase all 22 million shares currently authorized under its buyback plan in 2026. With US$1.7 billion in free cash flow at the midpoint, the bulk of that capital goes back to shareholders.

The company carries an A-minus rating from all three major credit rating agencies. Its leverage is also within the target range. That kind of financial discipline is rare in the auto supply industry, where most peers carry much lower ratings.

A broken business does not drive the 34% decline in Magna’s stock. It reflects broader uncertainty around auto production volumes, EV timing, and tariff noise.

With a strong balance sheet, rising margins, a rock-solid dividend, and a product portfolio built for whatever the auto industry becomes, long-term investors have a lot to work with here.

The post A Dividend Stock Down 34% That’s Worth Holding Indefinitely appeared first on The Motley Fool Canada.

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Bank of America is an advertising partner of Motley Fool Money. Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.