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What are we looking for?

Sustainable dividends from top transportation firms.

The screen

This week’s decision by U.S. regulators to block a key step in Canadian National Railway Co.’s acquisition of Missouri-based Kansas City Southern may just have resurrected Canadian Pacific Railway Ltd.’s competing bid. Both CP and CN will continue to thrive either way – driven by recovering economies and shipping demand in the wake of the pandemic. The railway merger activity only highlights the broader appeal of transportation firms as e-commerce surges.

Admittedly, a lot of these stocks have low dividend yields. That’s due in part to the sector’s heavy capital requirements and the drain on cash flow. But the low yields also reflect the recent share-price jumps for most industry leaders during the pandemic. All in all, their growth prospects and dividends should appeal to income investors.

Our search started with a list of transportation stocks. We then applied our TSI Dividend Sustainability Rating System to focus on top dividend payers. Our system 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 to cover dividends;
  • One point if the company’s 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. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

These companies keep the economy – and dividends – rolling

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)**1Y Ttl. Rtn. (%) Recent Price ($)**
1Canadian National Railway Co.CNR-THighest101.6105.211.4154.00
2Canadian Pacific Railway Ltd.CP-THighest100.857.817.991.15
3United Parcel Service Inc.UPS-NAbove Average92.1170.420.7196.40
4Deutsche Post AG (ADRs)DPSGY-OTCAbove Average91.787.453.369.76
5FedEx Corp.FDX-NAbove Average91.170.717.9265.93
6TFI International Inc.TFII-TAbove Average80.813.3144.1145.41
7Knight-Swift TransportationKNX-NAbove Average80.88.614.452.86
8J.B. Hunt Transport ServicesJBHT-QAbove Average80.718.727.4179.14
9Mullen Group Ltd.MTL-TAbove Average73.61.334.513.42
10Cargojet Inc.CJT-TAbove Average70.53.617.8210.60

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.

Our TSI Dividend Sustainability Rating System generated 10 stocks: Giants CN, headquartered in Montreal, and Calgary-based CP continue to keep North America’s goods moving. As do Canadian truckers TFI International Inc. of Montreal and Okotoks, Alta.-based Mullen Group Ltd. – along with Mississauga’s Cargojet Inc., with its big shipping contract with Inc.

South of the border, United Parcel Service Inc., headquartered in Atlanta, and Memphis-based FedEx Corp. are world leaders in air and ground delivery. Truckers J.B. Hunt Transport Services Inc. from Arkansas and Arizona-based Knight-Swift Transportation Holdings Inc. continue to report rising profits despite increasing costs.

Finally, Deutsche Post AG, based in Bonn and operating as Deutsche Post DHL Group, is among the world’s top couriers.

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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