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What are we looking for?

High-quality dividend payers that are down in price in 2022 – and now even bigger bargains for income investors because of tax-loss selling.

The screen

The lure of cutting taxes can spur investors to make costly errors. To realize a tax loss, they’ll dump high-quality stocks. That’s a mistake, which can offer you a bargain as the best of these stocks often rebound sharply in the New Year.

In fact, some of the lowest-risk, highest-profit investments you’ll ever make come about because you bought good stocks when other investors were ignoring value and selling indiscriminately, particularly during tax-loss season.

We started this search with an extensive list of dividend-paying stocks, before singling out those further battered by tax-loss selling. They otherwise have promising outlooks bolstered by leading market positions. Our system 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 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

Eight dividend paying stocks in leading market positions battered by tax-loss selling

Ranking*CompanyTickerDiv. Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Mil.)**1Y Ttl. Rtn. (%) Recent Price ($)**
1Bank of Nova ScotiaBNS-TAbove Average96.377,785.2-25.065.86
2Transcontinental Inc.TCL-A-TAbove Average96.01,305.1-24.614.91
3IGM Financial Inc.IGM-TAbove Average95.98,860.4-16.738.20
4Canadian Tire Corp. Ltd.CTC-A-TAbove Average94.98,736.0-20.7142.18
5FedEx Corp.FDX-NAbove Average92.742,767.3-32.5169.99
6Intel Corp.INTC-QAbove Average85.4109,120.0-47.226.63
7Andrew Peller Ltd.ADW-A-TAbove Average85.0222.0-39.44.94
8Stanley Black & Decker Inc.SWK-NAbove Average84.411,041.2-59.173.27

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.

Our TSI Dividend Sustainability Rating System generated eight stocks with high dividend sustainability despite significant share price declines over 2022. That includes declines in December – traditionally, the biggest month for tax-loss selling. Toronto-based Bank of Nova Scotia BNS-T is the country’s fourth-largest bank by market capitalization. It’s down on the year, and off 6.1 per cent in December alone. Andrew Peller Ltd. ADW-A-T, based in Grimsby, Ont., sells wine and whisky. It’s down 4.3 per cent in December. Similarly, the loss, this month alone, is indicated in brackets for the following stocks (all losses are on a total return basis):

Memphis-based FedEx Corp. FDX-N, (5.8 per cent) is a world leader in air and ground delivery. Intel Corp. INTC-Q (10.7 per cent), headquartered in Santa Clara, Calif., is one of the world’s biggest makers of chips for PCs and servers. Canadian Tire Corp. CTC-A-T (7.7 per cent), headquartered in Toronto, operates Canadian Tire stores, as well as PartSource, Party City, Mark’s, Sport Chek and Sports Experts. Winnipeg’s IGM Financial Inc. IMG-T (4.4 per cent), is Canada’s largest independent mutual fund provider. It also offers exchange-traded funds and wealth management services. Stanley Black & Decker Inc. SWK-N (11 per cent), based in Connecticut, is one of the world’s largest makers of hand and power tools. And finally, Transcontinental Inc. TCL-A-T (12.3 per cent) is headquartered in Montreal and is Canada’s leading commercial printer. It also makes plastic packaging for consumer and industrial products.

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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