What are we looking for?
Sustainable dividends from top stocks hitting all-time highs – but well removed from any worries about a possible artificial-intelligence (AI) bubble.
The screen
Investor fears of a potential correction for AI stocks dominated financial headlines this week.
That includes concerns that AI-related companies have overinvested in the new technology and will struggle to meet investor expectations for profitability.
AI will continue to advance alongside the rapid expansion of big computing and big data. Even so, we still think the best way for most investors to profit is with companies set to gain from AI’s evolution, yet have a solid base of business outside of that sector. Our analysts at The Successful Investor count IBM Corp. and Microsoft Corp. among those players.
Meanwhile, investors should continue to prioritize portfolio diversity by also looking for stocks with strong price momentum far removed from the expectations surrounding AI. At the same time, remember any stock at the top end of its historical pricing carries extra risk. That makes it all the more important to focus on companies where their prospects for earnings and sales growth line up with their share-price gains.
Our search started with a list of Canadian and U.S. corporations at or near their all-time highs, with strong revenue and earnings outlooks as well as limited AI exposure. From there, we singled out dividend payers before applying our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:
- 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 noncyclical 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 an industry leader;
- one point for five years of continuous dividend payments;
- two points for more than five.
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 six stocks: The TJX Cos. Inc. TJX-N, headquartered in Framingham, Mass., is a leader in off-price retail. Like its competitors, the company purchases merchandise at below-wholesale prices and in turn charges consumers less than retail prices.
Indianapolis-based Eli Lilly and Co. LLY-N is profiting from a strong pharma lineup, which includes its Mounjaro weight-loss drug. Extendicare Inc. EXE-T, based in Markham, Ont., owns and operates long-term care homes. Investors also tap the company’s ParaMed Home Health Care branches, which provide assistance to clients who remain in their own homes.
Winnipeg-headquartered Great-West Lifeco Inc. GWO-T is a top life insurer in Canada. Manulife Financial Corp. MFC-T, based in Toronto, is another of the country’s leading providers of life coverage.
And finally, Stingray Group Inc. RAY-A-T, headquartered in Montreal, is a provider of multiplatform music services. It broadcasts music and video content on several platforms, including radio stations, premium television channels, satellite TV, mobile devices and game consoles.
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.