What are we looking for?
Domestic players looking to this week’s Canada Investment Summit for new projects to bolster their earnings and shareholder dividends.
The screen
The inaugural event in Toronto was aimed at attracting $1-trillion in private and institutional capital to a slew of Canadian projects – potentially backed by $280-billion in federal government capital investments and incentives.
Attendees included senior executives from a number of Canadian companies as well as the leaders of major global investment houses including BlackRock Inc. BLK-N, Blackstone BX-N, JPMorgan Chase JPM-N, KKR KKR-N, and Singapore-based investment firm Temasek. Sovereign wealth funds, including Norway’s government pension fund, and state-owned firms, such as the Abu Dhabi National Oil Co., were among those alongside Canadian institutional investors CPP Investments and the Alberta Investment Management Corp. (AIMCo).
Key to the success of the summit will be the ability of the Carney government to ease investor concerns about policy-reversal risk, red tape, emissions caps and carbon taxes, plus environmental reviews and regulatory requirements that stretch project timelines.
Five conglomerates with sustainable dividends that have potential for spinouts
The summit’s focus in large part was on capital-intensive sectors, such as energy, critical minerals, defence and advanced technology, where Canada already has impressive representation and financial backers. The best among those offer highly sustainable dividends and will prosper regardless of the summit’s outcome. At the same time, they stand to gain even more from the acceleration of U.S. and foreign investment.
Our analysts at The Successful Investor started this search by looking at Canadian firms attending the summit. We then applied our TSI Dividend Sustainability Rating System to dividend payers. Our system 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 for being 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, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks.
Canadian oil and gas major Suncor Energy Inc. SU-T, headquartered in Calgary, generates production from oil sands, as well as conventional wells, for sale and to feed its refining operations.
Pipeline operator TC Energy Corp. TRP-T, also based in Calgary, operates a 93,700-kilometre pipeline network that pumps natural gas from Alberta to Eastern Canada and the United States. It also owns gas pipelines in Mexico, and owns or invests in seven power plants in Canada and the U.S.
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Auto-parts leader Linamar Corp. LNR-T, headquartered in Guelph, Ont., makes a variety of automotive parts, including cylinder heads and cylinder blocks. Its self-propelled, scissor-type work platforms trade under the Skyjack brand.
Sun Life Financial Inc. SLF-T headquartered in Toronto, is a leading Canadian life insurer, with expanding interests in Asia. The company will invest $5-billion over the next five years in critical Canadian infrastructure, including digital technology, energy and transportation.
Toronto-Dominion Bank TD-T, based in Toronto, is a Big Five stalwart. The bank will provide $150-billion in financing over five years across five key sectors, including energy, critical minerals and resources, defence and aerospace, digital and AI and infrastructure.
Note, we like Summit attendees Cameco Corp. CCO-T and Teck Resources Ltd. TECK-B-T but have excluded them from this list given their low dividend yields (currently below 1 per cent).
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.