What are we looking for?
Canadian dividend payers rewarding investors with share buybacks – a relatively risk-free gift from corporations facing tariff threats.
The screen
Montreal-based Canadian National Railway Co. CNR-T is just one of the country’s large corporations continuing with stock buyback programs despite the brewing tariff dispute with the U.S. That $2.9-billion repurchase authorization is on top of CN raising its sustainable dividend by 5 per cent.
While the dividend hike is easily appreciated by most shareholders, the buyback also has the power to boost the company’s share price. Specifically, a buyback of common shares, and their cancellation, means fewer shares are outstanding, which translates into higher per-share earnings and higher stock market interest. That, ultimately, lifts the share price.
It’s also worth noting that buyback programs can be halted if economic conditions worsen under tariffs. Clawing back a dividend, on the other hand, can hurt investor confidence and the stock price.
Our search started with a list of Canadian corporations with strong revenue and earnings outlooks that are now rewarding shareholders with the double gift of buybacks and strong, sustainable dividends. In most cases, those income payments are also rising. 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; and
- 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; four to six points, average sustainability; and one to three points, below average sustainability.
What we found
Our TSI Dividend Sustainability Rating System generated six stocks, including Canadian National Railway. Calgary-based Imperial Oil Ltd. IMO-T keeps raising its dividends – and continues to buy back shares under its current $2.4-billion authorization. Barrick Gold Corp., headquartered in Toronto, just announced a new buyback plan of as much as $1-billion in shares. Nutrien Ltd. NTR-T, headquartered in Saskatoon, plans to continue its substantial stock repurchases (approximately $1.8-billion) this year, on top of its recent dividend hike. Canadian Imperial Bank of Commerce CM-T and Toronto-Dominion Bank TD-T, both based in Toronto, are in the midst of their own share buyback plans, roughly $1.6-billion and as much as $8.6-billion, respectively. What’s more, each company increased its dividend payout early this year. And finally, leading Canadian insurer Manulife Financial Corp. MFC-T, headquartered in Toronto, expects to repurchase as much as $2.3-billion of its stock this year. It also just raised its dividend.
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.