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What are we looking for?

Canadian companies rewarding investors with sustainable dividends – but also share buybacks.

The screen

A soon-to-be-completed $2.5-billion share buyback by Calgary-based Imperial Oil Ltd. comes on top of its recent 25.9-per-cent dividend hike.

Following a buyback of common shares, and their cancellation, fewer shares are left outstanding. That translates into higher per-share earnings, which usually lifts investor interest and, ultimately, the share price. Better still, any resulting capital gain tax for shareholders is put off until they sell. That’s distinctly different from dividend income – taxed the same year it is received.

Our search started with a list of Canadian corporations that are now rewarding shareholders with hefty buybacks. That’s in addition to offering strong – and in some cases, rising – 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 noncyclical 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’s 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; 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, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Canadian companies with sustainable dividends and share buybacks

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)1Y Ttl. Rtn. (%) Recent Price ($)
1Enbridge Inc.ENB-THighest116.0116.624.757.81
2CIBCCM-THighest104.662.94.070.10
3TD BankTD-THighest103.8167.66.493.76
4Suncor EnergySU-TAbove Average83.770.181.350.47
5Imperial Oil Inc.IMO-TAbove Average82.045.176.868.67
6Leon's FurnitureLNF-TAbove Average73.91.1-30.716.29

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, including Imperial Oil. Calgary-based Suncor Energy Inc., like its rival Imperial, recently raised its dividends and buyback target. Toronto-based Leon’s Furniture Ltd. completed its plan to repurchase $200-million of its common shares at the start of this year. Canadian Imperial Bank of Commerce and Toronto-Dominion Bank, both based in Toronto, are in the midst of their own share buyback plans, which were announced late last year. What’s more, each has hiked its dividend payout. And finally, Calgary’s Enbridge Inc. is another top Canadian firm now sharing its strong cash flow with shareholders in the form of a dividend hike but also a substantial buyback program.

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

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

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