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What are we looking for?

Sustainable dividends from companies already reporting their financial risks from climate change.

The screen

Climate change took centre stage at this week’s World Economic Forum in Davos, Switzerland. While big investors in attendance put pressure on corporations to track and report their exposure to climate-change risks, some corporations are well ahead of the curve: They’ve voluntarily adopted industry-specific standards on revealing those financial implications to shareholders.

Their disclosure tracks risks such as their susceptibility to more-prevalent floods and wildfires. Many also share liabilities stemming from new and proposed regulatory changes.

Our search started with Canadian and U.S. dividend-payers aiming for transparency. We then applied our TSI Dividend Sustainability Rating System, awarding points to a stock based on key 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 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 movements and freedom from political interference;
  • Two points for a strong balance sheet;
  • 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 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 six stocks. Algonquin Power & Utilities Corp. tracks risks to its hydroelectric plants from rising climate volatility. Water utility American Water Works Co. pins down the risks to its water resources. Johnson Controls International PLC supplies energy-efficient heating and air-conditioning for buildings and is transparent about meeting changing customer demands in a warming world. Cereal-giant Kellogg Co. faces serious climate consequences centred on grain inputs. Clorox Co.’s challenges include calculating costs of ever-scarcer water. Energy-generator, distributor and pipeline giant Enbridge Inc. continues to test and report on the profitability of its existing assets and operations as climate-change concerns weaken demand for fossil fuels.

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

Climate volatility: Select dividend stocks adopting industry-specific standards on financial risks

Ranking *CompanyTickerDividend Sustainability RatingPointsDiv. Yld. %Mkt. Cap. ($ Bil.) **Recent Price ($) **1Y Ttl. Rtn. (%)
1Enbridge Inc.ENB-THighest116.1107.953.6712.7
2Algonquin Power & Utilities Corp.AQN-TAbove Average93.810.319.6938.6
3Clorox Co.CLX-NAbove Average92.720.0159.635.6
4American Water Works Co. AWK-NAbove Average91.524.1134.0544.5
5Kellogg Co.K-NAbove Average83.224.170.2619.7
6Johnson Controls International PLCJCI-NAbove Average72.531.741.3727.1

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. ** In the native currency.

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

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