What are we looking for?
Sustainable dividends from Canadian service providers positioned to maintain, or even increase, their sales in the United States despite lingering tariff uncertainty.
The screen
Last week’s July 1 deadline for the governments of Canada, Mexico and the U.S. to renew the existing trade agreement for a 16-year term came and went with predictable outcomes: Canada and Mexico indicated their desire to renew, with the U.S. refusing to do the same.
As a result, the agreement is likely to stay in place till 2036, with annual reviews going forward.
The yearly review process won’t generate new tariffs, but it won’t necessarily block them either. The White House could well seek to impose tariffs on Canada and other countries through other legal channels without running afoul of the U.S. Supreme Court ruling confirming congressional authority over tariffs.
Our analysts at The Successful Investor believe investors can help protect their portfolios by holding those Canadian stocks most likely to thrive regardless of the tariff climate. These companies provide services rather than produce physical products, and have customers in the U.S. market. That’s a plus, because services are generally not subject to tariffs.
Many of the stocks have small dividend yields reflective of their strong share-price gains over the past few years. Even so, we think the prices can go higher.
We started our search with a list of Canadian service providers offering dividends. We then singled out those with strong prospects and significant U.S. operations before applying our TSI Dividend Sustainability Rating System. It awards points to a stock based on 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 non-cyclical 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 for being an industry leader
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; 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. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six stocks.
FirstService Corp., based in Toronto, has two main businesses: FirstService Residential, which provides an array of property management services, and FirstService Brands, which includes Paul Davis Restoration, CertaPro Painters and California Closets. It generates 90 per cent of its revenue in the U.S.
Colliers International Group Inc., also based in Toronto, offers a range of services, including helping clients buy and sell commercial real estate, arrange financing, and assess properties for tax purposes. It generates 52 per cent of its revenue in the U.S.
Headquartered in Edmonton, Stantec Inc. is a leading seller of consulting, project-delivery, design and technology services. It generates 52 per cent of its revenue in the U.S.
Thomson Reuters Corp., based in Toronto, sells specialized information, mainly through electronic channels, to professionals in the legal, and tax and accounting fields, and owns the Reuters news service. It generates 72 per cent of its revenue in the U.S. (Woodbridge Co. Ltd., the Thomson family holding company, is controlling shareholder of Thomson Reuters and also owns The Globe and Mail.)
Montreal-headquartered AtkinsRéalis Group Inc. is a leading engineering services and nuclear design and refurbishment company. It generates about 21 per cent of its revenue in the U.S. And finally, Laval, Quebec-based Alimentation Couche-Tard Inc. operates convenience stores, mostly in North America and Europe. The company generates 57 per cent of its revenue in the U.S.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.