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What are we looking for?

Sustainable dividends with limited direct exposure to Sino-U.S. tariffs.

The screen

Economists are quick to point out just how bad the U.S.-China trade war is for everybody. But those ill effects will likely take longer to reach established firms with little direct exposure to China.

How soon a breakthrough will come in talks between the world’s two largest economies is uncertain. Meanwhile, stocks little affected by the tariff war – and offering sustainable dividends – are a plus for your portfolio.

We searched for companies with limited direct tariff exposure. We then applied our TSI Dividend Sustainability Rating System. It awards points to a dividend payer 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 an industry leader.

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 six stocks: U.S. discount retailer TJX Cos., parent of Winners, HomeSense and Marshalls, sources roughly just 10 per cent of its products from China, while rival Kohl’s Corp. gets only 8 per cent. Both are well positioned to compete against retailers with considerably more tariff cost pressures. Newmont Goldcorp Corp. is the world’s leading gold producer – but with no mines in China. In 2016, Yum Brands Inc. split off its KFC, Pizza Hut and Taco Bell banners in China as Yum China. Wendy’s Co. also has no restaurants in China, unlike McDonald’s Corp. Networking giant Cisco Systems Inc. has used its global supply chain to reduce its Chinese-made components and is also pursuing international market share now held by Huawei Technologies Co. Ltd.

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

Select U.S.-listed dividend equities less exposed to tariff war

Ranking*CompanyTickerDiv. Sustainability RatingPointsDiv. Yield %Mkt. Cap. ($ Bil.)Recent Price (US$)1Y Ttl. Rtn. %
1Cisco Systems Inc.CSCO-QAbove Average92.7225.252.3419.9
2Wendy's Co.WEN-QAbove Average82.04.219.5814.3
3Yum Brands Inc.YUM-NAbove Average81.535.5116.2642.5
4Kohl's Corp. KSS-NAbove Average75.38.250.56-31.3
5TJX Cos. TJX-NAbove Average71.863.552.175.9
6Newmont GoldcorpNEM-NAbove Average71.531.139.3510.3

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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