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What are we looking for?

Sustainable dividends from new stock listings well outside the limelight of Lyft Inc. and other high-profile IPOs.

The screen

Ride-hailing company Lyft jumped 23 per cent last week when its initial public offering debuted. A week later, the shares have given back all those gains, plus a little more.

Investor euphoria has likely given way to concerns Lyft will remain unprofitable as it battles Uber Technologies Inc.

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Generally, we think the odds are against IPO investors: Insiders launch IPOs when it’s a good time to sell, not when it’s a good time for you to buy.

Like IPOs, spinoffs are new listings – but ones where companies set up profitable subsidiaries as independent firms and hand out shares to their investors. The best often launch with dividends and, as pure-play companies, frequently attract takeover bids.

We singled out dividend payers from recent spinoffs. We then applied our TSI Dividend Sustainability Rating System, which awards points 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 it’s 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 five recent spinoffs primed for growth: Dow Inc. is this week’s spinoff of DowDuPont Inc.’s materials science business. Last year, Wyndham Destinations Inc. spun off Wyndham Hotels & Resorts Inc., the largest global hotel franchisor, while Pentair PLC split off electrical-components maker nVent Electric PLC. Five months ago, Trinity Industries Inc. handed shareholders its infrastructure business, Arcosa Inc. CorePoint Lodging Inc. is a 2018 REIT spinoff of hotelier La Quinta Holdings Inc.

The dividend seeker’s alternative to hyped-up IPOs

Ranking*CompanyTickerDividend Sustainability RatingPointsDiv. Yield (%)Market Cap (US$Mil)Share price (US$)Total Return (%)**
1Dow Inc. DOW-NAbove Average84.942,660.056.8819.7
2Wyndham Hotels & Resorts Inc.WH-NAbove Average82.34,931.450.91-17.4
3nVent Electric PLCNVT-NAbove Average72.54,914.327.658.4
4Arcosa Inc.ACA-NAbove Average70.71,503.131.5150.0
5CorePoint Lodging Inc.CPLG-NAverage66.8705.012.1-56.7

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. 
**From point of inception.

We advise investors to do additional research on any 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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