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What are we looking for?

Stocks profiting from expanding coffee consumption – and with the added bonus of sustainable dividends.

The screen

There’s a lot of buzz surrounding the coming legalization of recreational cannabis in Canada, but for income investors, a worldwide craving for a cup of java already serves up many dividend opportunities.

North American coffee consumption keeps rising – fuelled by pod coffee makers and gourmet/specialty drinks. That’s only expected to increase, with millennials (ages 18-37) representing the single largest group of coffee consumers.

Just as important, coffee drinking is growing internationally, especially in tea-dominated markets China and India.

Our search started with leading firms in the coffee market. We then singled out those with profit potential and sustainable dividends.

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 six stocks. Starbucks Corp. is the world’s biggest retailer of specialty coffees. McDonald’s Corp. has made huge strides with its McCafé concept. Dunkin’ Brands Group Inc. is a leading global chain of coffee shops and also owns Baskin-Robbins ice cream shops. Restaurant Brands International Inc. owns Canadian coffee icon Tim Hortons, as well as Burger King and Popeyes Louisiana Kitchen. B.C.-based Ten Peaks Coffee Co. uses its chemical-free Swiss Water Process to remove caffeine from coffee beans. Britain-based hospitality firm Whitbread PLC owns major global coffee-shop chain Costa Coffee.

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

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

Leaders in the coffee market

Ranking*CompanyTickerMarket cap ($Mil)**Share price $**PointsDiv. Sustainability Rating1Yr Total Return (%) Div. Yield (%)
1Starbucks Corp.SBUX-Q69,524.049.8410Highest-15.52.9
2McDonald's Corp.MCD-N126,343.2157.4210Highest2.42.6
3Restaurant BrandsQSR-T37,389.278.229Above Average-3.82.9
4Dunkin' Brands GroupDNKN-Q5,719.369.169Above Average26.62.0
5Whitbread PLCWTBCF-OTC9,460.060.208Above Average18.02.6
6Ten Peaks CoffeeTPK-T56.36.244Average-2.74.0

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.

 **Share price and market cap are in native currency.

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