What are we looking for?
Sustainable dividends from Canadian retailers with strong prospects ahead.
The screen
As B.C. billionaire Ruby Liu struggles to win landlord confidence – and approval – for her plan to take over 25 Hudson’s Bay store leases in the province, Canadian investors can be forgiven for doubting the long-term viability of other major retailers.
Still, our TSI analyst team sees strong outlooks for some players, especially those with the kind of revenue and earnings strength needed to fund dividends.
At the same time, the Bank of Canada appears poised this year to restart cutting its benchmark interest rate. Any further cuts will likely have an outsized impact on consumer intentions and spending.
Lower rates reduce household debt costs and boost spending power. That’s certain to benefit the strongest Canadian retailers and their share prices.
For this search, we’ve narrowed our focus to Canadian retailers with solid revenue and organizational strength – and paying shareholder dividends. To determine the relative viability of their dividends, we rely on 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 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 seven stocks primed for growth. Toronto-headquartered Leon’s Furniture Ltd. LNF-T, including its chain The Brick, operates across Canada. Also based in Toronto, Canadian Tire Corp. Ltd. CTC-T has myriad banners spanning the country. Brampton, Ont.-based Loblaw Cos. Ltd. L-T, with its Shoppers Drug Mart chain, plus Montreal’s Metro Inc. MRU-T, with its Jean Coutu pharmacies, sell food, drugs and more to Canadians. Joining them is Empire Co. Ltd. EMP-A-T of Stellarton, N.S., with brands including Sobeys, Safeway, FreshCo and Farm Boy. In Canada’s north, profits remain strong for Winnipeg’s North West Co. Inc. NWC-T And finally, Montreal’s BMTC Group Inc. GBT-T operates a retail network of furniture, household appliances and electronic products in Quebec.
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.