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What are we looking for?

Sustainable dividends from companies poised to profit from the new Kitimat LNG project.

The screen

Royal Dutch Shell PLC and its partners this week gave the green light to their liquefied natural gas (LNG) project in Kitimat, B.C. The LNG Canada plant will ship LNG to Japan, China and other Asian markets. The B.C. location gives the $40-billion project a big competitive edge – for example, shipments to Japan will take half as long as from the U.S. Gulf Coast.

As part of the project, TransCanada Corp. will also move forward with its $6.2-billion Coastal GasLink pipeline to carry gas south from northeastern British Columbia to Kitimat.

Outside of TransCanada, and the LNG Canada consortium (including Shell with 40 per cent; Malaysia’s state-owned Petronas, 25 per cent; Petro-China Co. Ltd., 15 per cent; Mitsubishi Corp., 15 per cent; and South Korea’s Kogas Gas Corp., 5 per cent), a number of Canadian firms are producing, processing or transporting natural gas from northeastern B.C.

Our search started with stocks well positioned to gain from B.C.’s LNG activity.

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 eight stocks. Shell and PetroChina will benefit directly from the Kitimat LNG project – but they also produce gas in northeastern B.C. Pembina Pipeline Corp. owns processing plants and pipelines in the area. TransCanada will build its Coastal GasLink pipeline. Encana Corp. produces and processes gas in the region. Tourmaline Oil Corp., Arc Resources Ltd. and Canadian Natural Resources Ltd. are ready to accelerate output at their northeastern B.C. gas fields.

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

Companies set to profit from new Kitimat LNG project

Ranking* Company Ticker Div. Sustainability Rating Div. Yield (%) Points Mkt. Cap. ($Bil.)** Recent Price ($)** 1Y Total Rtn. (%)
1 TransCanada Corp. TRP-T Highest 5.1 11 48.7 53.78 -12.2
2 Pembina Pipeline PPL-T Above Average 5.0 9 22.8 45.29 2.5
3 Royal Dutch Shell PLC (ADR) RDS-A-N Above Average 4.6 9 288.1 69.48 14.1
4 Cdn. Natural Resources Ltd. CNQ-T Above Average 3.2 8 51.3 42.26 0.0
5 PetroChina Co. Ltd. (ADR) PTR-N Above Average 2.1 8 147.2 82.07 27.5
6 Encana Corp. ECA-T Above Average 0.5 8 16.2 17.31 19.4
7 Arc Resources Ltd. ARX-T Average 4.2 5 5.1 14.50 -15.7
8 Tourmaline Oil Corp. TOU-T Average 1.8 5 6.1 23.52 -6.9

*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 

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

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