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What are we looking for?

Sustainable dividends from firms spurred by holiday toy sales.

The screen

This holiday season marks the first since Toys "R" Us Inc. shuttered its U.S. stores (the Canadian chain continues to operate independently in private hands). That departure has sent not just retailers but also toy makers scrambling to pick up market share.

The toy industry’s dividend-payers are few and far between. While Mattel Inc., Canada’s Spin Master Corp. and, increasingly, Amazon.com Inc. are leaders, they don’t pay dividends. Still, a select few use their robust toy profits to reward investors with sustainable dividends.

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Our search zeroed in on manufacturers, brand licensors and retailers with sound growth prospects – plus dividends.

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. Walt Disney Co. is the world’s leading licensor to toy makers with brands such as Marvel, Star Wars, Mickey Mouse and Disney Princess. Big toy maker Hasbro Inc. will profit from the holiday release of the latest Transformers movie, Bumblebee (which it also produced). Hasbro aims to replace lost Toys "R" Us sales through other retailers, including giants Walmart Inc., Target Corp. and Costco Wholesale Corp. All three have widened online and in-store toy offerings to better challenge Amazon. Specifically in this country, Canadian Tire Corp. Ltd. is aggressively promoting an expanded toy selection.

Select toy-industry dividend stocks

Ranking* Company Ticker Dividend Sustainability Rating Points Div. Yield (%) Market Cap ($Bil)** Share Price ($)** 1-Yr Total Return (%)
1 Target Corp. TGT-N Highest 10 3.8 34.8 67.79 11.1
2 Canadian Tire Corp. Ltd. CTC-A-T Highest 10 2.9 9.6 143.58 -12.2
3 Walmart Inc. WMT-N Highest 10 2.2 278.0 93.11 -3.7
4 Costco Wholesale Corp. COST-Q Highest 10 1.0 99.3 227.80 21.0
5 Walt Disney Co. DIS-N Above Average 9 1.6 166.7 112.21 4.5
6 Hasbro Inc. HAS-Q Above Average 8 3.0 10.6 84.83 -7.8

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.

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

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

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