What are we looking for?
Sustainable dividends from Canadian companies with decades of continuous – and rising! – payments to shareholders.
The screen
A company pays dividends to attract shareholders and reward them for owning stock in the corporation. Those investor payments hold as much appeal for the dividend issuer as the receiver: dividend-paying companies generally outperform their non-dividend-paying counterparts over time – usually by a considerable margin.
In fact, our analysts at The Successful Investor note that dividends have accounted for over 40 per cent of the S&P 500’s total returns since the start of the Great Depression. While some good companies reinvest their profits instead of paying dividends, it’s almost always the case that fraudulent and failing companies are unable to sustain dividend commitments, even if they’ve made them. Most, of course, have not.
For a true measure of dividend stability, investors should focus on companies that have maintained or raised shareholder payments over long periods – including during recessions and stock market downturns. These businesses leave themselves enough room to handle periods of earnings volatility.
We started this search with an extensive list of Canadian dividend-paying stocks, before singling out those with exceedingly long records of continuously rising payments. We then applied our Dividend Sustainability rating system, which 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.
Montreal-based Canadian National Railway Co. CNR-T operates Canada’s largest railway. The company’s latest dividend hike was its 30th consecutive increase.
Pipeline operator TC Energy Corp. TRP-T, based in Calgary, recently raised its payout for the 26th year in a row.
Power utility Canadian Utilities Ltd. CU-T, also based in Calgary, has raised its dividend for a whopping 54 consecutive years.
Calgary-headquartered ATCO Ltd. ACO-X-T owns 52.5 per cent of Canadian Utilities Ltd. but also ATCO Structures & Logistics and 40 per cent of Neltume Ports; the last of those holdings operates 23 ports and related operations in South America. ATCO is on a 33-year dividend growth streak.
Thomson Reuters Corp. TRI-T, based in Toronto, sells specialized information (mainly through electronic channels) to professionals in the legal, and tax and accounting fields. It also owns the Reuters news service. Thomson has a 33-year record of dividend increases.
Montreal’s Metro Inc. MRU-T continues to profit from its broad range of food and pharmaceutical offerings. The company’s latest dividend hike was its 32nd consecutive increase.
And, Fortis Inc. FTS-T, headquartered in Newfoundland, is the main supplier of electrical power in Newfoundland and PEI. It also owns electrical and gas utilities across North America. Fortis has increased its dividend for a stellar 52 consecutive years.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.