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What are we looking for?

Sustainable dividends from Canadian players set to gain from an overhaul of mortgage-qualifying standards.

The screen

Federal Finance Minister Bill Morneau announced Tuesday a more flexible benchmark interest rate used by lenders to assess Canadians for insured mortgages.

The goal is to ease the threshold that buyers must cross as they seek to purchase at a time when the average home price, according to January data from the Canadian Real Estate Association, is $504,350.

The change to the stress test should effectively lower today’s interest rate on a five-year, fixed-rate mortgage by about a third of a percentage point. It should also spur growth for lenders, builders and insurers. Starting with our list of Canadian dividend payers, we singled out those directly in line to profit from expanding housing demand. We then applied our TSI Dividend Sustainability Rating System, awarding points to a stock based on key factors:

  • One point for a long-term (five years) record of dividends – two points for more than five years of continuous payments;
  • Two points for raising the payment in the past five years;
  • One point for management’s public commitment to dividends;
  • One point for operating in non-cyclical industries, which are less sensitive to the ups and downs of the economy;
  • One point for limited exposure to foreign-currency movements and freedom from political interference;
  • Two points for a strong balance sheet;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if it’s an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability rating. 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 companies that will profit from a less stringent mortgage stress test. Canadian Imperial Bank of Commerce, the most domestically focused of the Canadian banks, is keen to boost its mortgage lending. Genworth MI Canada Inc. is the single-biggest private residential mortgage insurer. First National Financial Corp. is Canada’s largest non-bank lender of prime mortgages. More than 19,000 agents operate under brands of Bridgemarq Real Estate Services Inc., including Royal LePage and Johnston & Daniel. Information Services Corp. provides the government of Saskatchewan with land title and survey-registry services as it expands across Canada and internationally.

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

Select TSX-listed dividend stocks

Ranking*CompanyTickerDiv. Sustainability RatingPointsMkt. Cap. ($ Mil.)Div. Yld. (%)Recent price ($)1Y Ttl. Rtn. (%)
1Canadian Imperial Bank of CommerceCM-THighest1048,607.45.3109.04-3.7
2First National Financial Corp.FN-TAbove Average82,
3Genworth MI Canada Inc.MIC-TAbove Average85,060.23.758.6736.5
4Bridgemarq Real Estate Services Inc. BRE-TAbove Average7143.38.815.28-3.5
5Information Services Corp. ISV-TAbove Average7290.34.816.69-1.0

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.

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

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