TSI’s Scott Clayton has selected seven Canadian retailers offering the best potential for dividend sustainability and growth. Scott applied our 12-point Dividend Sustainability Rating System to emphasize what every sensible portfolio needs: multi-year dividend growth, strong balance sheets, and consistent earnings.
These top-ranked selections include retailers with extensive national operations, healthy revenue bases, and a demonstrated commitment to rewarding shareholders through reliable dividend distributions. You’ll gain exposure to a range of essential goods, household necessities, and consumer staples. These are key areas that stand to benefit as consumer spending is supported by anticipated interest rate reductions from the Bank of Canada.
Our screening process targets Canadian retailers that exhibit both financial strength and organizational stability, along with a consistent history of paying and increasing dividends. We prioritize firms that have shown the ability to weather economic cycles and maintain stable performance, thanks in part to limited exposure to foreign exchange volatility.
The TSI Dividend Sustainability Rating System assesses each company using several important criteria. We favour businesses that have delivered at least five consecutive years of dividend payments, with extra credit for those that have raised their payouts over time. Management’s dedication to maintaining and growing dividends is a key factor, as is operating in non-cyclical sectors that typically provide more predictable earnings. We also focus on financial health, giving preference to companies with manageable debt and strong cash positions. Consistent profitability and cash flow, alongside clear industry leadership, round out the qualities we look for to ensure dividends remain secure and sustainable.
Excerpt from theglobeandmail.com
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 stores, Canadian investors may well doubt 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 going forward, 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 case
- 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.
7 choices for your Canadian retail income needs
Our TSI Dividend Sustainability Rating System generated seven stocks primed for growth:
Toronto-headquartered Leon’s Furniture Ltd. (with a 2.9% yield), including its chain The Brick, operates across Canada.
Also based in Toronto, Canadian Tire Corp. Ltd. (3.8%) has myriad banners spanning the country.
Brampton, Ontario’s Loblaw Cos. Ltd. (1.0%), with its Shoppers Drug Mart chain, plus Montreal’s Metro Inc. (1.4%), with its Jean Coutu pharmacies, continue to sell food, drugs and more to Canadians.
Joining them is Stellarton, Nova Scotia’s Empire Co. Ltd. (1.6%), with brands including Sobeys, Safeway, FreshCo and Farm Boy.
In Canada’s north, profits remain strong for Winnipeg’s North West Co. Inc. (3.4%)
And finally, Montreal’s BMTC Group Inc. (2.5%) 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.
