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What are we looking for?

Sustainable dividends tapping Canada’s housing market rebound.

The screen

The Canadian Real Estate Association this week pointed to a 15.5-per-cent jump in home sales in September, compared with a year ago, with Toronto (up 21 per cent) and Vancouver (up 45 per cent) leading the way.

The gains – the seventh straight month of rising sales after a six-year low – puts renewed pressure on home buyers. It does, however, benefit sellers and the companies servicing Canada’s real estate and mortgage markets.

Starting with our list of Canadian dividend payers, we singled out those directly profiting from expanding housing demand. We then trimmed that list with our TSI Dividend Sustainability Rating System, which awards a stock points based on the following eight factors:

  • One point for a long-term (at least five years) record of dividends – two points for more than five years of continuous payments;
  • Two points if it has raised 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 move up and down with the economy. Sharply lower earnings could prompt a company to cut its dividend to conserve cash;
  • One point for limited exposure to foreign currency exchange 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 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 profiting from rebounding residential real estate. First National Financial Corp. is one of Canada’s largest non-bank lender of prime mortgages. Genworth MI Canada Inc. is the biggest private-sector mortgage insurer. Equitable Group Inc. is one of the country’s largest subprime lenders.

More than 19,000 agents operate under the brands of Bridgemarq Real Estate Services Inc., including Royal LePage and Johnston & Daniel. (Brookfield Real Estate Services Inc. began operating as Bridgemarq Real Estate Services in January.)

Information Services Corp. provides the government of Saskatchewan with land title, survey registry and related services; it’s expanding elsewhere in Canada and internationally.

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

Select dividend-paying stocks tied to real estate & mortgage markets

Ranking*CompanyTickerDiv. Sustainability RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)1Y Ttl. Rtn. (%) Recent price ($)
1First National Financial Corp.FN-TAbove Average84.92,345.144.039.01
2Genworth MI Canada Inc.MIC-TAbove Average83.94,585.232.352.45
3Equitable Group Inc.EQB-TAbove Average81.21,780.171.1106.63
4Bridgemarq Real Estate Serv.BRE-TAbove Average79.1140.1-8.914.90
5Information Services Corp. ISV-TAbove Average75.0281.94.616.25

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.

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

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