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Seven stocks for the investor looking for activist-targeted companies offering sustainable dividends

What are we looking for?

Activist-targeted companies already offering sustainable dividends.

The screen

Activist investors are once again in the spotlight, with news this week that the board of car dealer AutoCanada Inc. is being urged to boost shareholder value. Clearwater Capital Management, which is behind that request, also wants the company to explore the possibility of an outright sale.

Activists typically buy into underachieving companies and push for change. That often includes demands for board seats or jettisoning subsidiaries to pay for dividend hikes or share buybacks.

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Whatever the outcome of activist pressure, it draws stock market attention to a company’s underlying value. It just as often boosts dividend sustainability.

Our search started with a list of corporations now the target of investor activism.

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;

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• 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.

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What we found

Our TSI Dividend Sustainability Rating System generated seven stocks.

Like AutoCanada, Power Corp. faces its own activist concerns. With core holdings such as Great-West Lifeco, it’s been urged by Graeme Roustan, the manager of a Florida equity fund, to divest peripheral businesses. Bill Ackman’s Pershing Square Capital Management wants home improvement retailer Lowe’s Cos. Inc. to better compete. Prominent activist Jana Partners is pushing Pinnacle Foods Inc. for board seats – or an outright sale. Outsourcing firm Convergys Corp. could also draw a takeover bid and activists continue to agitate for industrial conglomerate United Technologies Corp. to break up. Canada’s Alcanna Inc., formerly Liquor Stores N.A., now has activists on its board and is branching out into cannabis sales.

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

Select dividend stocks subject to activist pressure

Ranking*CompanyTickerDiv. Sustainability RatingDiv. Sustainability ScoreDiv. Yield (%)Mkt. cap. ($ Mil.)**Recent price ($) **1Y Total Rtn. (%)
1Lowe's Cos. Inc.LOW-NAbove Average91.982,023.299.4624.9
2United Technologies Corp.UTX-NAbove Average82.2102,544.1126.945.7
3Pinnacle Foods Inc.PF-NAbove Average82.07,614.163.644.8
4Power Corp.POW-TAbove Average75.012,701.330.745.6
5Convergys Corp.CVG-NAverage51.82,192.424.41-1.0
6Alcanna Inc. CLIQ-TAverage44.0337.69.08-3.1
7AutoCanada Inc.ACQ-TAverage42.4459.016.60-11.1

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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