What are we looking for?
Sustainable dividends from Canadian non-bank financials set to prosper despite risks to the economy.
The screen
Canada’s Big Five banks reported third-quarter earnings that beat analysts’ forecasts. Notably, the improved results were spurred by lower loan loss provisions as the impact of U.S. tariffs on the banks’ loan portfolios remained muted.
Going forward, the banking outlook should stay positive but cautious as Canada and the United States continue with trade negotiations. In the meantime, this country’s economy will benefit from tariff exemptions under the existing United States-Mexico-Canada trade agreement.
We still see all the Big Five as attractive long-term investments, even as they leapfrog each other in performance and investment desirability. That’s why we advise most Canadians to invest in two or even three of them.
Still, our analysts at The Successful Investor think it’s a good time, as always, to diversify your financial-sector holdings beyond the banks. That’s especially so if you focus on stocks that pay sustainable dividends.
From a list of Canadian non-bank financials, we identified leaders with steady growth prospects plus the added appeal of sustainable dividends. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:
- 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 an industry leader;
- One point for five years of continuous dividend payments;
- Two points for more than five years.
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 seven stocks.
Sun Life Financial Inc. SLF-T and Manulife Financial Corp., MFC-T both headquartered in Toronto, are among Canada’s leading life insurers.
Another Toronto-based leader, Fairfax Financial Holdings Ltd. FFH-T, mainly sells insurance and reinsurance, but also manages a large investment portfolio.
Toronto-based Intact Financial Corp. IFC-T offers investors exposure to Canada’s largest provider of property and casualty insurance.
Waterloo, Ont.-based Definity Financial Corp. DFY-T is also a provider of property and casualty insurance in Canada.
Winnipeg-headquartered Great-West Lifeco Inc. GWO-T is a top life insurer in Canada.
And finally, Montreal-headquartered holding company Power Corp. of Canada POW-T has controlling stakes in Great-West Lifeco and IGM Financial Inc. IGM-T The latter is Canada’s largest independent mutual fund provider.
We advise investors to do additional research on investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.