What are we looking for?
Canadian companies rewarding investors with share buybacks and sustainable dividends.
The screen
Calgary-based Suncor Energy Inc. SU-T is now accelerating its stock buybacks in response to activist pressure, on the heels of increasing its already attractive dividend by 4.8 per cent.
The dividend hike is appreciated by shareholders, but don’t overlook the impact of the share repurchase. Following a buyback of common shares, and their cancellation, fewer shares are left outstanding. That translates into higher per-share earnings, which usually lifts market interest and, ultimately, the share price.
Better still, any resulting capital gain tax associated with the share price rise is put off until an investor sells those shares. That’s distinctly different from dividend income, which is taxed in the same year it is received.
Our search started with a list of Canadian companies with strong revenue and earnings outlooks and which are now rewarding shareholders with a double gift: hefty buybacks and 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:
- One point for five years of continuous dividend payments, and 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 to cover dividends;
- One point if the company is 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 six stocks, including Suncor Energy. Rival Calgary-based Imperial Oil Ltd. IMO-T which also keeps raising its dividend – and recently announced a big new share buyback. Nutrien Ltd., NTR-T headquartered in Saskatoon, plans to continue its substantial stock repurchases this year, and also recently hiked 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, has bought back about $5.5-billion of its shares over the past five years – and expects to repurchase a further $2-billion this year. It also recently raised its dividend.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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