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What are we looking for?

Sustainable dividends from Canadian retailers poised to gain from falling interest rates.

The screen

The Bank of Canada’s modest quarter-percentage-point cut to its benchmark interest rate on Wednesday will likely have an outsized impact on consumer intentions – and spending.

Lower rates reduce household debt costs and boost spending power. That’s certain to accrue to the benefit of Canadian retailers – first at the cash register, and then with their share prices.

We’re narrowing our focus here to Canadian retailers, and looking for sustainable dividend payers among the top Canadian competitors. Our TSI Dividend Sustainability Rating System 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

Retailers with sustainable dividends

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)1Y Ttl. Rtn. (%) Recent Price ($)
1Canadian Tire Corp. Ltd.CTC.A-THighest105.08,081.2-16.9139.95
2Metro Inc.MRU-THighest101.816,890.16.175.73
3Loblaw Companies Ltd.L-THighest101.349,465.437.8161.56
4North West Company Inc.NWC-TAbove Average94.01,852.0-1.939.01
5Empire Company Ltd.EMP.A-TAbove Average92.27,781.2-5.532.66
6Sleep Country Canada Holdings Inc.ZZZ-TAbove Average83.6886.5-1.926.60
7Leon's Furniture Ltd.LNF-TAbove Average73.21,511.43.922.41
8BMTC Group Inc.GBT-TAbove Average72.9412.2-21.012.25

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.

Our TSI Dividend Sustainability Rating System generated eight stocks primed for any growth spurred by falling interest rates: Toronto-headquartered Leon’s Furniture Ltd., LNF-T including its chain The Brick, operates across Canada. Also based in Toronto, Canadian Tire Corp. Ltd. CTC-A-T has myriad banners spanning the country. Brampton, Ont.-based Loblaw Cos. Ltd., L-T with its Shoppers Drug Mart chain, plus Montreal’s Metro Inc., MRU-T with its Jean Coutu pharmacies, continue to sell food, drugs and more to Canadians. Joining them is Empire Co. Ltd. EMP-A-T of Stellarton, N.S., whose brands including Sobeys, Safeway, FreshCo and Farm Boy. Sleep Country Canada Holdings Inc., ZZZ-T headquartered in Brampton, remains Canada’s dominant mattress retailer, while in the country’s north, profits remain strong for Winnipeg’s North West Co. Inc. NWC-T And finally, Montreal’s BMTC Group Inc. GBT-T operates a retail network of furniture, household appliances and electronic products in Quebec.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

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