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What are we looking for?

Sustainable dividends from Canadian retailers prospering in today’s hyper-competitive markets.

The screen

This week’s bid to take Hudson’s Bay Co. private pushed up the retailer’s shares by more than 40 per cent. The offer also offers relief to shareholders who’ve suffered through years of losses – and dividend cuts.

Other Canadian bricks-and-mortar retailers have struggled to maintain or grow their market share against Amazon.com Inc. and other online sellers. Apart from Target Corp.’s premature exit from Canada, the market has seen the high-profile bankruptcy of Bowring Brothers Ltd., Bombay Co. and Jean Machine Clothing Inc., among others.

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However, many chains have increased online sales and reversed their revenue slides. This boosts their growth prospects – and dividend sustainability.

From Canadian retailers, we identified well-established dividend payers with growth potential. We then applied our TSI Dividend Sustainability Rating System; it awards points to companies based on key factors:

  • One point for five years of continual 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 is 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 primed for growth: Leon’s Furniture Ltd., including its chain The Brick, operates across Canada. Canadian Tire Corp. Ltd.’s myriad banners span the country, while Metro Inc.’s grocery chains and drugstores expand online sales. Loblaw Cos. Ltd. continues to benefit from the addition of Shoppers Drug Mart. Nova Scotia’s Empire Co. Ltd. operates Sobeys supermarkets, plus Safeway and IGA. Sleep Country Canada Holdings Inc. remains Canada’s dominant mattress retailer. Dollarama Inc. continues with its growth plans, while in the North, profit remains strong for North West Co. Inc.

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

Select TSX-listed retailers

Ranking*CompanyTickerDiv. Sustainability RatingPointsDiv. Yield (%)Mkt. Cap. ($ Mil.)Recent Price ($)1Y Total Rtn. (% )
1Canadian Tire Corp. Ltd.CTC-A-THighest103.08,682.2136.95-20.2
2Loblaw Companies Ltd.L-THighest101.825,778.170.3032.7
3Metro Inc.MRU-THighest101.612,773.450.3217.1
4North West Company Inc.NWC-TAbove Average94.31,488.230.546.3
5Empire Company Ltd.EMP-A-TAbove Average91.48,430.031.2127.7
6Dollarama Inc.DOL-TAbove Average90.413,380.342.21-15.0
7Sleep Country Canada Holdings Inc.ZZZ-TAbove Average84.1702.419.07-43.8
8Leon's Furniture Ltd.LNF-TAbove Average73.71,176.115.18-17.0

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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