What are we looking for?
Sustainable dividends from “safe-harbour” alternatives to bonds.
The screen
Extreme market volatility is driving demand for bonds as investors seek haven from economic uncertainty. But there is an alternative to chasing meagre bond yields. Top gold, telecommunications and consumer stocks offer investors sustainable and growing dividends as well as capital-gains potential.
Golds are classic flight-to-safety stocks. But we also consider defensive-sector picks that thrive regardless of the economy, such as telecom companies and grocery chains. The latter are all the more attractive if they offer home delivery to allay consumer fears about COVID-19’s spread. As well, pharmaceutical stocks offer essential drugs and consumer products such as over-the-counter medications.
Our search started with Canadian and U.S. dividend-payers that we believe limit investor exposure to market tumult. (With their direct and indirect tie to energy, and the volatility there, utilities stocks were ruled out under our criteria.)
We then applied our TSI Dividend Sustainability Rating System. It awards points based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- 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 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 it’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
Our TSI Dividend Sustainability Rating System generated eight stocks. Newmont Corp. and Barrick Gold Corp. are the world’s two biggest gold producers, and each recently raised its dividend. Loblaw Cos. Ltd. and Metro Inc. are supermarket leaders, both with drugstore chains and expanded home delivery. BCE Inc. and Telus Corp. sell telecom services to Canadians. Pfizer Inc. and Johnson & Johnson are leading sellers of essential medicines, vaccines and health-care products.
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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Scott Clayton