BRP (TSE:DOO): Assessing Dividend Sustainability and Growth Amid Earnings Volatility and Strategic Reinvigoration

Investors seeking income from equities often prioritize companies with a track record of stable dividends and robust earnings coverage. BRP Inc. (TSE:DOO), a leader in the powersports industry, has long been a focal point for such investors. However, its recent financial performance-marked by sharp swings in earnings per share (EPS) and a historically strong dividend growth trajectory-demands a nuanced evaluation. This analysis examines BRP's dividend sustainability, the implications of its current payout ratio, and the potential for future growth, while cautioning against the risks posed by past volatility.

Dividend Payout Ratio: A Foundation for Stability

BRP's current dividend payout ratio of 26% as of December 2025 underscores a conservative approach to dividend distribution. This metric, which measures the proportion of earnings allocated to dividends, is significantly lower than the industry average for consumer durables, suggesting ample room for future increases. Analysts project the ratio could drop further to 11% in the next fiscal year, buoyed by expected earnings growth of 165.7%. Such a trajectory implies BRP's management is prioritizing financial flexibility, a critical factor in an industry prone to cyclical demand shifts.

The company's historical dividend growth also merits attention. Since 2017, BRP has delivered a compound annual growth rate of 13% in annual dividend payments, reflecting disciplined capital allocation and confidence in its earnings resilience. The most recent dividend hike, to CA$0.215 per share as reported, aligns with this trend and signals management's intent to reward shareholders while maintaining a buffer against potential downturns.

Earnings Growth: A Mixed Bag of Promise and Risk

While the forward-looking consensus EPS growth forecast of 198.4% for 2026 is encouraging, it contrasts sharply with BRP's recent past. Over the past five years, the company's EPS has been anything but stable. For instance, 2025's annual EPS of $-2.08 marked a 129.58% decline from 2024's $7.01, a downturn exacerbated by macroeconomic headwinds and sector-specific challenges. This volatility raises questions about the sustainability of future earnings gains, particularly in a market where demand for recreational vehicles can fluctuate with disposable income trends.

However, recent quarterly results offer a more optimistic outlook. For the third quarter of fiscal 2026 (ending October 31, 2025), normalized EPS surged 33% year-over-year to C$1.59, driven by improved product mix and pricing strategies. The company also raised its full-year guidance to approximately CAD 5 normalized EPS, reflecting confidence in its operational improvements. These developments suggest BRP's strategic initiatives-such as inventory discipline and a focus on premium models-are beginning to bear fruit.

Strategic Reinvigoration: Mission 28 and Long-Term Prospects

BRP's newly unveiled Mission 28 (M28) Strategic Plan, introduced during its 2025 Investor and Analyst Day, provides a roadmap for sustained growth. The plan aims to scale revenue to CAD 9.5 billion by 2028, leveraging market expansion in high-end segments and innovation in electric vehicles. CEO José Boisjoli emphasized the company's commitment to operational efficiency and global market alignment, factors that could insulate BRP from sector-wide downturns.

Capital allocation under M28 also prioritizes reinvestment in high-margin products and geographic diversification, which could enhance long-term earnings stability. For example, BRP's Q3 2025 revenue growth of 14% year-over-year to CAD 2.3 billion is consistent with its strategy. If the company can maintain this momentum, the projected drop in the payout ratio to 11% may not only preserve dividend safety but also fund future innovation.

Cautionary Notes: Volatility and External Risks

Despite these positives, investors must remain vigilant. BRP's historical EPS volatility-exemplified by the 116.5% year-over-year decline in its twelve-month EPS as of July 2025-underscores the inherent risks of its business model. A downturn in discretionary spending, supply chain disruptions, or regulatory shifts in the powersports sector could quickly erode earnings and strain the dividend. Additionally, while the current payout ratio is low, a sudden spike in dividend growth without corresponding earnings expansion could jeopardize sustainability.

Conclusion: A Compelling but Cautious Case for Income Investors

BRP's low payout ratio and strong EPS growth projections position it as a compelling long-term income play in 2026, particularly for investors with a moderate risk tolerance. The company's strategic focus on premium products, operational efficiency, and innovation provides a solid foundation for dividend expansion. However, the historical volatility in earnings and the cyclical nature of the powersports industry necessitate a cautious approach. Investors should monitor BRP's ability to execute its M28 plan and maintain earnings momentum, while diversifying their portfolios to mitigate sector-specific risks.

For now, BRP appears to balance the dual imperatives of rewarding shareholders and investing in future growth-a rare combination in today's market.