What are we looking for?
Nothing is certain with U.S. President Donald Trump and the North American free-trade agreement. But today we're looking for sustainable dividends from auto stocks best able to profit from this week's apparent progress on the issue of car exports.
The United States appears ready to drop its demand that vehicles made in Canada and Mexico for export to the United States comprise at least 50-per-cent American content. That bodes well for auto makers and suppliers in all three NAFTA countries. But, even if negotiations fail, we're bullish on top-quality auto stocks with strong global prospects – as well as sustainable dividends.
To find those stocks, we start with profitable and expanding U.S. and Canadian auto and auto-parts makers offering dividends. We then apply 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 if the company is a leader in its industry.
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. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.
What did we find?
Our TSI Dividend Sustainability Rating System generated six stocks that will continue to prosper from open borders. General Motors Co. and Ford Motor Co. both have huge U.S./Canadian operations and demand. Honda Motor Co. Ltd.'s U.S. and Canadian production – including its flagship Civic and CR-V plant in Alliston, Ont. – are also heavily entwined. Auto-parts leaders Linamar Corp. and Magna International Inc. both prosper from the free movement of their products across the border. Parts maker Exco Technologies Ltd. is a lot smaller than those two, but ships its auto-interior components from Canada and Mexico into the United States.
We advise investors to do additional research on any investments we identify here.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
|Ranking*||Company||Ticker||Market cap ($Mil)**||Recent Price $**||1-Yr Total Return %||Points||Dividend Sustainability Rating||Div. Yield %|
|1||Honda (ADR)||HMC-N||62,349.0||34.49||12.0||9||Above Average||1.6|
|2||Ford Motor Co.||F-N||43,667.1||11.10||-5.3||8||Above Average||5.4|
|3||General Motors Co.||GM-N||51,758.2||37.58||8.8||8||Above Average||4.0|
|4||Magna International Inc.||MG-T||26,121.0||74.45||31.3||7||Above Average||2.2|
|5||Linamar Corp.||LNR-T||4,680.3||73.52||21.1||7||Above Average||0.7|
|6||Exco Technologies Ltd.||XTC-T||391.0||9.38||-20.5||6||Average||3.6|
Source: Dividend Advisor
*Ranking is determined by TSI Dividend Sustainability Score. Where overall points are the same, analysts considered P/E, dividend yield and industry outlook to decide final placements. **Share price and market cap are in native currency.