TSI’s Scott Clayton has identified a selection of dividend-yielding champions in the Canadian service sector, each showing promising growth trajectories and significant U.S. operations. Our famous TSI Dividend Sustainability Rating System suggests these stocks are strategically aligned for expansion, especially as trade tensions between Canada and the U.S. continue to evolve.
These six standout Canadian service providers blend solid dividend track records with formidable market presence and growth prospects in the U.S. They have a history of reliable dividend distributions and offer solid fundamentals to not only continue their payout track records but also to deliver share price growth in the current economic climate.
Our curated list includes leading firms in engineering services, property management, commercial real estate services, consulting, specialized information provision, and convenience store operations. These firms generate a substantial portion of their revenue from U.S. operations, ranging from 19% to 87%. Our evaluation indicates that as trade uncertainties persist, these high-yielding stocks represent attractive opportunities to leverage prevailing market conditions while mitigating potential tariff risks.
Excerpt from theglobeandmail.com
What are we looking for?
Sustainable dividends from Canadian service providers operating in the U.S. and unlikely to attract tariffs.
The screen
Canadian markets were further spooked this week by news the Trump administration plans to saddle Canadian steel and aluminum imports with a 25% tariff.
Ultimately, it’s uncertain what, if any, tariffs will be imposed next. But investors can help protect their portfolios with a group of Canadian stocks unlikely to draw the attention of the White House.
Specifically, Canadian services providers – as opposed to manufacturers and commodity sellers – have escaped U.S. tariff threats even as the most successful among them continue to expand their client lists in the States.
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In a trade war, they could nonetheless be subject to any procurement restrictions that the U.S. places on service providers without operations in that country. It’s therefore prudent to seek out Canadian firms that service U.S. clients through their own U.S. operations.
We started our search with a list of Canadian service providers offering dividends. We then singled out those with strong prospects – and significant U.S. operations. (Note – many of these stocks have meagre yields reflective of their strong share-price gains over the last few years.) From here we applied 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.
Canadian service stocks worth owning
What we found
Our TSI Dividend Sustainability Rating System generated six stocks:
AtkinsRealis Group Inc. (with a 0.1% yield), headquartered in Montreal, is a leading engineering services and nuclear design and refurbishment company. It generates about 19% of its revenue in the U.S.
FirstService Corp. (0.6%), based in Toronto, has two main businesses: FirstService Residential, which provides an array of property management services, and FirstService Brands, which includes Paul Davis Restoration, CertaPro Painters and California Closets. It generates 87% of its revenue in the U.S.
Colliers International Group Inc. (0.2%), also based in Toronto, offers a range of services, including helping clients buy and sell commercial real estate, arranging financing, and assessing properties for tax purposes. It generates 55% of its revenue in the U.S.
Stantec Inc. (0.8%), headquartered in Edmonton, is a leading seller of consulting, project-delivery, design and technology services. It generates 53% of its revenue in the U.S.
Thomson Reuters Corp. (1.3%), 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. It generates 47% of its revenue in the U.S.
And finally, Laval, Quebec-headquartered Alimentation Couche-Tard Inc. (1.1%), operates convenience stores, mostly in North America and Europe. The company generates 63% of its revenue in the U.S.
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.
