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What are we looking for?

Financial stocks with limited mortgage exposure, but strong growth potential and sustainable dividends.

The screen

The Home Capital meltdown has highlighted the volatility for financial stocks with significant exposure to real estate lending. We still like Canada's Big Five banks. That's because their high lending standards cut risk. However, it's also a good time to diversify your financial-sector holdings beyond the banks – especially if you focus on stocks that pay sustainable dividends.

This search started with our extensive list of dividend-paying Canadian and U.S. financial stocks. We then identified those companies offering the most sustainable dividends and parsed through their earnings reports to determine mortgage lending and mortgage securities exposure.

Our TSI Dividend Sustainability Rating System awards points to a company based on eight key factors:

  • One point for five years of continuous dividend payments – two points for more than five years;
  • Two points if those payments have been raised in the past five years;
  • One point for management’s public commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to currency exchange 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 dividend payments;
  • One point if the company is a leader in its industry.

Publicly traded companies with 10 to 12 points have the highest sustainability rating, while those with seven to nine points are above average; four to six points, average; and one to three points, below average.

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 the award-winning Successful Investor and the TSI Dividend Advisor – the newest addition. TSI Network is affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated seven financial stocks that are positioned to maintain or raise their dividends without any significant exposure to mortgage lending. T. Rowe Price, for example, is a prominent U.S. mutual fund and wealth management firm. IGM Financial is a Canadian leader in the same industry. Broadridge Financial is a major U.S.-based investor communications company and back-office service provider. Top Canadian insurance company Intact Financial is also on the list, along with Power Corp. and Power Financial. The last two own big stakes in insurer Great-West Lifeco and IGM as well as other investments. All seven of our top stocks appear in the accompanying table.

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.

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Select North American financial stocks

Ranking*CompanyTickerDividend Sustainability RatingMarket Cap ($Bil)**Dividend Yield Points
1T. Rowe Price GroupTROW-QHighest17.33.310
2IGM FinancialIGM-TAbove Average9.65.79
3Great-West LifecoGWO-TAbove Average33.54.49
4Intact Financial IFC-TAbove Average12.22.88
5Broadridge FinancialBR-NAbove Average8.61.88
6Power Financial PWF-TAbove Average23.25.27
7Power Corp.POW-TAbove Average13.95.07

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.
**Market cap is in native currency.