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Seven dividend gems in a lacklustre Canadian index

What are we looking for?

Canadian dividend payers whose share prices have outpaced U.S. markets.

The screen

The S&P 500 index is up about 60 per cent from its prerecession peak in October, 2007. By contrast, the S&P/TSX composite index is at a virtual standstill since it hit its prerecession high in June, 2008. That reflects its high proportion of oil and other resource stocks. But some Canadian equities have posted the same sort of outsized gains as U.S. markets. Beyond that, a select few have moved even higher – as well as offering highly sustainable dividends.

Our search for those stocks started with an extensive list of dividend payers. We then singled out Canadian stocks with share prices that are up 60 per cent or more from their respective prerecession highs.

Finally, we applied our TSI Dividend Sustainability Rating System to each of those stock issuers. That system awards points based on eight 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. – Pat McKeough's widely followed group of Canadian investment newsletters. They include our award-winning flagship newsletter, the Successful Investor, which covers S&P/TSX stocks. The TSI Dividend Advisor is the newest addition. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated seven stocks that have beaten the S&P 500 since their own precrisis highs. They're also ready to maintain, if not raise, their payouts. Toronto-Dominion Bank, for instance, is up 70 per cent, while Quebec-based grocer Metro Inc. is up a whopping 264 per cent. Emera Inc. – Nova Scotia's power generator now expanding in the United States – is up 104 per cent, with Canadian Pacific Railway Ltd. posting a 165-per-cent gain. Canadian Tire Corp. Ltd. has risen 69 per cent – just below insurer Intact Financial Corp.'s 89-per-cent gain. Calian Group Ltd., a Canadian leader in outsourcing services, is now 117 per cent above its own precrisis high.

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.

Select Canadian dividend stocks

Ranking*CompanyTickerMarket Cap ($ Mil)Div. Yield (%) Points Dividend Sustainability Rating
2TD BankTD-T118,781.43.710Highest
3Canadian Tire CTC.A-T10,529.41.810Highest
4Metro Inc.MRU-T9,698.51.510Highest
5Canadian Pacific RailCP-T28,926.11.210Highest
6Calian Group CGY-T220.43.98Above Average
7Intact Financial IFC-T12,947.42.68Above Average

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.

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