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What are we looking for?

Long-term dividend sustainability from retailers with sound prospects yet overwhelmingly dependent on in-store shopping.

The screen

Canada’s Dollarama Inc. surprised some investors this week with its plan to hike its dividend despite COVID-19′s impact on in-store shopping.

While the discount retailer’s stores have largely stayed open during the pandemic, with restrictions such as limits on store capacity, other chains equally dependent on their bricks-and-mortar outlets have shuttered them under lockdown orders. Regardless, prospects for a select group of these retailers – each with a strong business model – remain solid. That bodes well for their dividends.

Our search zeroed in on Canadian and U.S. dividend-paying retailers still prospering despite the pandemic – and doing it without a robust e-commerce presence. We then applied 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 we found

Our TSI Dividend Sustainability Rating System generated five stocks. U.S. off-price discount retailer TJX Cos. Inc., parent of Winners, HomeSense and Marshalls, remains focused on attracting shoppers to its stores rather than a website. It just reinstated – and raised – its dividend. Discounters Dollarama and Tennessee-based Dollar General Corp. both rely on foot traffic rather than online sales. (Note that the meagre dividend yields of both companies reflect strong share price growth this year.) Quebec furniture retailer BMTC Group Inc. still depends on its showrooms, having only just implemented the first phase of an e-commerce plan. And finally, North West Co. Inc. has its stores mostly in northern communities across Canada and Alaska. Delivery challenges in those remote regions mean this thriving dividend payer will continue to depend on in-store customer traffic.

We advise investors to do additional research on any investments we identify here.

Select bricks-and-mortar retailers with sustainable dividends

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)**1Y Ttl. Rtn. (%)Recent price ($)**
1North West Co. Inc.NWT-TAbove Average94.21,615.420.534.11
2Dollar General Corp.DG-NAbove Average90.751,786.235.0208.98
3Dollarama Inc.DOL-TAbove Average90.316,611.123.555.00
4TJX Cos. Inc.TJX-NAbove Average81.678,545.310.566.72
5BMTC Group Inc.GBT-TAbove Average72.3410.919.712.20

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.

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

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