Shin­ing div­i­dend gems in a lack­lus­tre in­dex

The Globe and Mail (Prairie Edition) - - REPORT ON BUSINESS - SCOTT CLAY­TON

What are we look­ing for?

Cana­dian div­i­dend pay­ers whose share prices have out­paced U.S. mar­kets.

The screen

The S&P 500 in­dex is up about 60 per cent from its pre­re­ces­sion peak in Oc­to­ber, 2007. By con­trast, the S&P/TSX com­pos­ite in­dex is at a vir­tual stand­still since it hit its pre­re­ces­sion high in June, 2008. That re­flects its high pro­por­tion of oil and other re­source stocks. But some Cana­dian equities have posted the same sort of out­sized gains as U.S. mar­kets. Be­yond that, a se­lect few have moved even higher – as well as of­fer­ing highly sus­tain­able div­i­dends.

Our search for those stocks started with an ex­ten­sive list of div­i­dend pay­ers. We then sin­gled out Cana­dian stocks with share prices that are up 60 per cent or more from their re­spec­tive prere- ces­sion highs.

Fi­nally, we ap­plied our TSI Div­i­dend Sus­tain­abil­ity Rating Sys­tem to each of those stock is­suers. That sys­tem awards points based on eight key fac­tors:

One point for five years of con­tin­u­ous div­i­dend pay­ments – two points for more than five.

Two points if it has raised the pay­ment in the past five years. One point for man­age­ment’s com­mit­ment to div­i­dends. One point for oper­at­ing in non­cycli­cal in­dus­tries. One point for lim­ited ex­po­sure to for­eign cur­rency rates and free­dom from po­lit­i­cal in­ter­fer­ence. Two points for a strong bal­ance sheet, in­clud­ing man­age­able debt and ad­e­quate cash. Two points for a long-term record of pos­i­tive earn­ings and cash-flow-suf­fi­cient to cover div­i­dend pay­ments. One point if the com­pany is a leader in its in­dus­try.

Com­pa­nies with 10 to 12 points have the most se­cure div­i­dends or the high­est sus­tain­abil­ity. Those with seven to nine points have above-av­er­age sus­tain­abil- ity; av­er­age sus­tain­abil­ity, four to six points; and be­low-av­er­age sus­tain­abil­ity, one to three points.

More about TSI Net­work

TSI Net­work is the on­line home of the Suc­cess­ful In­vestor Inc. – Pat McKeough’s widely fol­lowed group of Cana­dian in­vest­ment news­let­ters. They in­clude our award-win­ning flag­ship news­let­ter, the Suc­cess­ful In­vestor, which cov­ers S&P/TSX stocks. The TSI Div­i­dend Ad­vi­sor is the new­est ad­di­tion. TSI Net­work is also af­fil­i­ated with Suc­cess­ful In­vestor Wealth Man­age­ment.

What we found

Our TSI Div­i­dend Sus­tain­abil­ity Rating Sys­tem gen­er­ated seven stocks that have beaten the S&P 500 since their own pre­cri­sis highs. They’re also ready to main­tain, if not raise, their pay­outs. Toronto-Do­min­ion Bank, for in­stance, is up 70 per cent, while Que­bec-based gro­cer Metro Inc. is up a whop­ping 264 per cent. Emera Inc. – Nova Sco­tia’s power gen­er­a­tor now ex­pand­ing in the United States – is up 104 per cent, with Cana­dian Pa­cific Rail­way Ltd. post­ing a 165per-cent gain. Cana­dian Tire Corp. Ltd. has risen 69 per cent – just be­low in­surer In­tact Fi­nan­cial Corp.’s 89-per-cent gain. Calian Group Ltd., a Cana­dian leader in out­sourc­ing ser­vices, is now 117 per cent above its own pre­cri­sis high.

We ad­vise in­vestors to do ad­di­tional re­search on any in­vest­ments we iden­tify here. Scott Clay­ton, MBA, is se­nior an­a­lyst for TSI Net­work and as­so­ciate editor of TSI Div­i­dend Ad­vi­sor.

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