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What are we looking for?

Sustainable yields from dividend payers branching out into cannabis.

The screen

Investors focused on the fallout from regulatory troubles at CannTrust Holdings Inc. may have missed this week’s announcement that Alimentation Couche-Tard Ltd. has invested $25-million in Edmonton-based cannabis retailer Fire & Flower Holdings Corp. By taking a 9.9-per-cent stake, the convenience store giant, headquartered in Laval, Que., accelerates its move into the cannabis space. Notwithstanding the sector’s volatility, Couche-Tard joins a growing list of well-established businesses now looking to that nascent market for growth.

Cannabis is a good fit for retailers or pharmacies aiming to expand their sales. It also has appeal for alcoholic-beverage and cigarette makers facing falling demand, and for food makers looking to beef up their offerings.

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Our search started with U.S. and Canadian stocks with sound growth prospects – merely strengthened by cannabis. 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 six stocks: Molson Coors Brewing Co. has joined with Canadian cannabis producer Hexo Corp. to introduce cannabis-infused beverages when Ottawa legalizes edibles this fall. Couche-Tard’s investment provides it access to cannabis retailing. Constellation Brands Inc., an international alcohol beverages leader, holds 38 per cent of pot-producer Canopy Growth Corp. Tobacco giant Altria Group Inc. owns 45 per cent of Canada’s Cronos Group Inc. Loblaw Cos. Ltd.’s Shoppers Drug Mart aims to expand medical marijuana sales nationwide. U.S.-based Walgreens Boots Alliance Inc. is introducing cannabidiol skin creams in nine states.

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

Dividend payers with sound growth prospects that have moved into cannabis

Ranking*CompanyTickerDividend Sustainability RatingPointsDiv. Yield %Recent price $**1Y Total Rtn. (%)Mkt. Cap. ($ Bil.)**
1Altria Group Inc.MO-NHighest106.449.78-14.293.6
2Loblaw Companies Ltd.L-THighest101.966.4120.225.0
3Molson Coors Brewing Co.TAP-NAbove Average94.056.65-12.112.2
4Alimentation Couche-Tard Ltd.ATD-B-TAbove Average90.681.7336.345.7
5Walgreens Boots Alliance Inc.WBA-QAbove Average83.355.20-15.749.4
6Constellation Brands Inc.STZ-NAbove Average71.5204.09-4.938.8

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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