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What are we looking for?

Dividend sustainability bolstered by streamlined operations and cost cuts.

The screen

Loblaw Cos. Ltd. is the latest company to make headlines for moving to improve efficiency. The retailer will eliminate nearly 800 jobs largely by shifting its Quebec distribution to an automated facility.

There’s no question restructuring often focuses on lowering payroll, but the best plans also spur long-term growth.

Story continues below advertisement

To find companies winning those gains – increasingly through technology such as robotics – we started with a list of restructuring leaders. Narrowing in on income stocks, we applied our TSI Dividend Sustainability Rating System – awarding points on eight factors:

  • One point for a long-term (at least five years) record of dividends – two points for more than five years of continuous payments;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s public commitment to dividends;
  • One point for operating in noncyclical industries, which are less sensitive to the ups and downs of the economy (after all, sharply lower earnings could prompt a dividend cut to conserve cash);
  • One point for limited exposure to foreign currency exchange 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 an industry leader.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability rating. 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 Canadian firms set to benefit from streamlining and cost-cutting. Loblaw is automating its distribution network. Quebec-based grocer Metro Inc. is building technologically advanced fresh and frozen food distribution centres in Toronto, and shrinking payroll. Maple Leaf Foods Inc. is consolidating older operations by constructing a $660-million, tech-driven poultry-processing plant in London, Ont. Canadian National Railway Co. will lay off 1,600 employees in Canada and the United States to better match demand for its services. Transcontinental Inc. continues to close smaller printing facilities as it shifts to higher-profit packaging. Canadian Tire Corp. Ltd. aims to cut $200-million in costs by 2022, partly by consolidating warehouses.

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

Six TSX-listed stocks 

Ranking*CompanyTickerDividend Sustain. RatingPointsDiv. Yld. (%)Mkt. Cap. ($ Bil.)Recent Price ($)1Y Ttl. Rtn. (%)
1Canadian Tire Corp. Ltd.CTC.A-THighest103.28.9142.06-2.2
2Loblaw Cos. Ltd.L-THighest101.924.467.579.3
3Canadian Nat'l RailwayCNR-THighest101.884.3119.5115.7
4Metro Inc.MRU-THighest101.513.754.1714.8
5Transcontinental Inc.TCL-A-TAbove Average85.51.415.88-19.4
6Maple Leaf Foods Inc.MFI-TAbove Average82.33.124.96-12.1

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.

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

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