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What are we looking for?

Sustainable dividends from Canadian firms set to gain from a manufacturing shift to Mexico from China.

The screen

Canadian Prime Minister Justin Trudeau, U.S. President Joe Biden and Mexican President Andres Manuel Lopez Obrador met in January in Mexico City, where they discussed trade. “The Three Amigos” pledged to further expand supply chains between the three countries under the United States-Mexico-Canada Agreement, or USMCA. The meeting also served to reassert Mexico’s growing role as a low-cost manufacturing challenger to China. It came at the same time both the United States and Canada continue to struggle in their relationships with China.

Even before recent tensions, there was a stream of North American companies opting for Mexico over China as a production hub. They include Tesla Inc., which this week announced plans to build a major new manufacturing plant in the industrial city of Monterrey, Mexico.

To find top stocks primed for supply chain shifts to Mexico, plus USMCA gains, we started with profitable and expanding Canadian dividend payers. We then applied our TSI Dividend Sustainability Rating System. It awards points to a stock based on eight 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 to cover dividends;
  • One point if the company is 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; four to six points have average sustainability; and one to three points have below-average sustainability.

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, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Six dividend payers with links to Mexico

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)1Y Ttl. Rtn. (%) Recent Price ($)
1Canadian National Railway Co.CNR-THighest102.0104,501.23.6157.21
2Canadian Pacific Railway Ltd.CP-THighest100.796,455.119.1104.68
3Magna International Inc.MG-TAbove Average83.321,745.3-12.176.28
4Linamar Corp.LNR-TAbove Average81.14,600.017.674.70
5Savaria Corp.SIS-TAbove Average83.11,054.1-4.016.90
6Exco Technologies Ltd. XTC-TAverage65.6297.7-18.17.54

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.

Our TSI Dividend Sustainability Rating System generated six stocks relying on open North American borders and with plants in Mexico. Auto-parts leaders Linamar Corp. LNR-T and Magna International Inc. MG-T, both headquartered in Ontario, profit from the free movement across North America – and both already have numerous plants in Mexico. Another Ontario-based parts maker, Exco Technologies Ltd. XTC-T, ships its auto-interior components from Mexico into Canada and the United Stares. Quebec-based Savaria Corp. SIS-T makes personal mobility products including home elevators, stairlifts and adapted vehicles; it recently opened its first plant in Mexico – one modelled after its most productive operation in China. The new plant will help Savaria meet rising demand in the U.S., as well as cut its delivery times and freight costs. And finally, the networks of Montreal’s Canadian National Railway Co. CNR-T and Calgary’s Canadian Pacific Railway Ltd. CP-T will continue to play key roles in the movement of goods from Mexico to the U.S. and on to Canada.

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

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