What are we looking for?
Canadian companies rewarding investors with share buybacks on top of offering them sustainable dividends.
The screen
Montreal-based Canadian National Railway Co. CNR-T is taking advantage of recent share price declines to buy back more of its shares. That’s a boost to shareholder value, on top of the recent 3.1-per-cent hike to its dividend.
While dividend hikes are easily appreciated by most shareholders, the impact of share buybacks often goes unnoticed. That’s a shame, given a company’s repurchase of common shares – and then the cancellation of those shares – leaves fewer shares outstanding. That, in turn, lifts earnings per share, which can spur market interest and, ultimately, the share price.
Better still, any resulting capital-gains tax associated with the rise in share price gets put off until an investor sells their shares. That’s distinctly different from dividend income, which is taxed the same year in which it’s received.
Especially relevant today is that companies can easily halt buyback plans in the face of tariff and other disruptions to cash flow. That’s unlike dividends, which are hard to cut without hurting investor confidence and the share price.
Our search started with a list of Canadian corporations with strong revenue and earnings outlooks and now rewarding shareholders with a double gift – hefty buybacks as well as strong, sustainable dividends. In most cases, those income payments are also rising. 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 of continuous dividend payments
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, including Canadian National Railway.
Calgary-based Imperial Oil Ltd. IMO-T keeps raising its dividends – and continues to purchase shares under its current authorization. Barrick Mining Corp. ABX-T, headquartered in Toronto, just announced a dividend increase while it keeps buying back its stock under its continuing repurchase program.
Nutrien Ltd. NTR-T, headquartered in Saskatoon, plans to continue its substantial stock repurchases – plus it keeps raising its dividend. Canadian Imperial Bank of Commerce CM-T and Toronto-Dominion Bank TD-T, both based in Toronto, are in the midst of their own share buyback plans. What’s more, each increased its dividend payout late last year.
And finally, leading Canadian insurer Manulife Financial Corp. MFC-T, headquartered in Toronto, expects to repurchase as much as $2-billion of its stock this year. It also just raised its dividend.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
Editor’s note: In a previous version of this article, the accompanying chart incorrectly stated that market capitalization figures are in millions of dollars. They are in billions of dollars.