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What are we looking for?

U.S. and Canadian companies heaping big buybacks on top of sustainable dividends.

The screen

Apple Inc. announced this week its intention to repurchase US$100-billion of its own shares. That comes on top of its plans for a 15.9-per-cent dividend hike.

With a buyback, fewer shares outstanding translates into higher per-share earnings. More often than not, that pushes up investor interest as well as the company’s share price. Better still, any resulting capital gain for shareholders will only get taxed when they sell their shares. That’s distinctly different from dividend income – taxed the same year it is paid.

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Our search started with an extensive list of U.S. and Canadian corporations that are now rewarding shareholders with share buybacks and higher dividends. They include Apple and other U.S. firms flush with cash because of recent corporate tax reform.

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 10 stocks. Canadian oil-patch majors Imperial Oil Ltd. and rival Suncor Energy have both raised their dividends and buyback targets (about 3 per cent of the float in both cases). Loblaw and BCE have also lifted dividends and keep repurchasing their stock (Loblaw now aims to buy back 5 per cent of its shares over the next year while BCE recently repurchased 3.1 million of its common shares).

As with Apple, both Cisco and IBM – fuelled by U.S tax reform – have raised their dividends and committed to significant buybacks. Aircraft-maker Boeing and pharma-giants Amgen and Gilead have done the same.

Select companies paying dividends and buying back shares

Ranking *CompanyTickerDividend Sustainability RatingPointsDiv. Yield %Market cap. ($ Bil.) **Recent price ($) **1Y Total Rtn. (%)
1BCE Inc.BCE-THighest115.648.953.92-13.1
2Apple Inc.AAPL-QHighest101.7858.0176.5719.7
3Loblaw Cos. Ltd.L-THighest101.725.265.45-15.0
4Amgen AMGN-QAbove Average93.1112.0169.433.6
5Cisco Systems Inc.CSCO-QAbove Average93.0216.043.8628.1
6Int'l Business MachinesIBM-NAbove Average84.4133.1142.45-10.5
7Gilead Sciences Inc.GILD-QAbove Average83.494.666.88-2.5
8Suncor Energy Inc.SU-TAbove Average82.980.548.9013.4
9Boeing Co.BA-NAbove Average82.1192.0324.1976.7
10Imperial Oil Ltd.IMO-TAbove Average81.632.939.871.1

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. **Share price and market cap are in native currency. 

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

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

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