When I wrote Financially Strong Canadian Dividend Growth Stocks & Their Credit Ratings I looked at Canadian companies with a dividend streak of 5 of more years and Bank of Montreal [BMO.TO]: a total of 89 companies. While compiling that list I was surprised to discover that there were 8 companies that didn’t have any long term debt. In this article I’m going to take a quick look at each of these 8 companies to determine if any warrant more in-depth research. We’ll start with the company with the longest dividend streak and work our way down from there. 1st on the the list is…
Pason Systems Inc. [PSI.TO]
“Pason Systems Inc. is a provider of data management systems for drilling rigs. The Company offers solutions, which include data acquisition, wellsite reporting, remote communications, and Web-based information management, enables collaboration between the rig and the office. It operates through three geographic segments: Canada, the United States, and International (Latin America, Offshore, the Eastern Hemisphere and the Middle East). Its Electronic Drilling Recorder (EDR) provides a complete system of drilling data acquisition, data networking, and drilling management tools and reports at both the wellsite and customer offices. Its solution Pit Volume Totalizer (PVT) is used for the detection and early warning of kicks that are caused by hydrocarbons entering the wellbore under high pressure and expanding as they migrate to the surface. Its data management system Pason DataHub collects, stores, and displays drilling data, reports and real-time information from drilling operations.”A
Pason Systems Inc. has increased its dividend for 13 consecutive calendar yearsB, but if they fail to increase their dividend by the end of 2016 they will lose this dividend streak. Pason Systems Inc.’s last dividend increase was recorded in September 2014 when they announced a 13.3% dividend increase. The quarterly dividend was increased from $0.15 to $0.17. Pason is in the oil & gas equipment & services industry so I’m not surprised they haven’t increased their dividend since 2014 as this industry has been hit hard by low oil prices. They are currently losing money and have negative earnings. As they are not making enough money to cover the dividend and they have a history or sporadic earnings I am not currently interested in investing in this company.
As of August 31, 2016 their dividend yielded 3.6%B. They have 5 and 10 year dividend growth rates of 15.6%B and 22.8%B respectively.
Computer Modelling Group [CMG.TO]
“Computer Modelling Group Ltd. (CMG) is a Canada-based computer software technology company serving the oil and gas industry. The Company operates through the development and licensing of reservoir simulation software segment. The Company is a supplier of process reservoir modelling software with a blue chip customer base of international oil companies and technology centers in approximately 60 countries. The Company also provides professional services consisting of specialized support, consulting, training and contract research activities. The Company is engaged in the sales and technical support services based in Calgary, Houston, London, Dubai, Bogota and Kuala Lumpur. The Company’s subsidiaries include Computer Modelling Group Inc., CMG Venezuela, CMG Middle East FZ LLC and CMG (Europe) Limited.”A
Computer Modelling Group has increased its dividend for 12 consecutive calendar yearsB, but if they fail to increase their dividend by the end of 2016 they will lose this dividend streak. Computer Modelling Group’s last dividend increase was recorded in June 2014 when they announced a 5.3% dividend increase when the quarterly dividend was increased from $0.095 to $0.100.
As of August 31, 2016 they yielded 4.3%B. They have 5 and 10 year dividend growth rates of 16.4%B and 32.6%B respectively. They have a high payout ratio above 100% so I don’t plan on investing in the company.
Gluskin Sheff + Associates Inc. [GS.TO]
“Gluskin Sheff + Associates Inc. is a wealth management company, which is engaged in providing investment management services for high net worth private clients in Canada and abroad. The Company offers its clients various investment strategies across equity, fixed income and alternative asset classes. The Company provides wealth management services to high net worth investors, including entrepreneurs, professionals, family trusts, private charitable foundations and estates, and also serves number of institutions as clients. In addition to high net worth individuals, it offers asset management services to family offices, foundations, endowments and both public and private pensions around the world. The Company derives its revenue mainly from Base Management Fees, calculated as a percentage of assets under management (AUM), and Performance Fees, calculated annually as a percentage of the change in net asset values. The Company’s subsidiary includes BFAM Holdings Inc.”A
Gluskin Sheff + Associates recorded their last dividend increase in December 2015 with an 11.1% dividend increase. The quarterly dividend was increased from $0.225 to $0.250. They also pay out special dividends occasionally. They have increased their dividend for 10 consecutive calendar yearsB and as of August 31, 2016 yielded 5.3%B which is a high dividend yield for them. In 2008 and 2009 their dividend yield reached 6.8%B and 7.5%B respectively, but beyond this anything above 5% appears historically high. They also have a high 5 year dividend growth rate of 12.5%B. These are good characteristics of a dividend growth stock, but I don’t plan on investing for two reasons. First, the payout ratio is a little high coming in at 72%B. I typically want to see a payout ratio of 60% or less. Secondly my current exposure to financials is already quite high so I shouldn’t be adding a financial like Gluskin Sheff + Associates Inc. to my portfolio at this time.
Enghouse Systems Limited [ESL.TO]
“Enghouse Systems Limited develops enterprise software solutions for a range of vertical markets. The Company operates through two segments: the Interactive Management Group and the Asset Management Group. The Interactive Management Group specializes in customer interaction software and services that are designed to manage customer communications across the enterprise. Its technologies include contact center, attendant console, voice response, dialers, agent performance optimization and analytics that support telephony environment, deployed on premise or in the cloud. The Asset Management Group provides a range of products to telecom service providers, utilities, and the oil and gas industry. Its products include Operations Support Systems (OSS), Business Support Systems (BSS), Mobile Value Added Services (VAS) solutions and conversion services. The Asset Management Group also provides fleet routing, dispatch, scheduling, communications and emergency control center solutions.”A
Enghouse Systems Limited’s most recent dividend increase was recorded in May 2016 when they increased the quarterly dividend 16.7% from $0.12 to $0.14. Enghouse Systems Limited has increased its dividend for 9 consecutive calendar yearsB and as of August 31, 2016 yielded a low 1.0%B. They have a 5 year dividend growth rate of 23.4%B. Their payout ratio is a reasonable at 39%B.
I’d be more interested in this company if the dividend yield were higher. At 1% it is too low for me to get interested in as a dividend growth investor. Looking back to 2007 when they started paying a dividend I was able to confirm that the company typically has a low dividend yield. The highest it reached was 2.9%B in 2008. In 2009 it got as high as 2.5%B. If the company were to get closer to a 2.5% dividend yield, then I’d consider investing after completing more research at that time.
What are your thoughts on Enghouse Systems Limited?
Jean Coutu Group [PJC-A.TO]
“The Jean Coutu Group (PJC) Inc. is a Canada-based company, which is engaged in franchising pharmacy chains. The Company operates through two segments: franchising and generic drugs. Within the franchising segment, the Company carries on the franchising activity under the banners of PJC Jean Coutu, PJC Clinique, PJC Jean Coutu Sante and PJC Jean Coutu Sante Beaute; operates approximately two distribution centers, and coordinates various other services for its franchisees. In the generic drugs segment, the Company owns Pro Doc Ltd, a Canadian manufacturer of generic drugs whose revenues come from the sale of generic drugs to wholesalers and pharmacists. The Company has approximately 420 PJC franchised stores in Quebec, Ontario and New Brunswick. The Company’s services to its franchisees include centralized purchasing, distribution, marketing, training, human resources, management, operational consulting and information systems, as well as a private label program.”A
Jean Coutu Group’s most recent dividend increase was recorded in May 2016 when they increased the quarterly dividend 9.1% from $0.11 to $0.12. Jean Coutu Group has increased its dividend for 9 consecutive calendar yearsB and as of August 31, 2016 yields 2.5%B which is historically quite high for the company. In 2008 and 2010 the dividend yield got as high as 2.6%B and earlier this year the dividend yield topped these previously high dividend yields. They have 5 and 10 year dividend growth rates of 15.4%B and 13.6%B respectively. The payout ratio is reasonable at 42%B.
I’m interested in this stock, but I’ll need to do some more research before investing. The Quebec Government is proposing changes to the rules around generic prescription drugs which could affect Jean Coutu Group’s business and I need to learn more about this first.
What’s your take on Jean Coutu Group? Is now the time to buy, or is it too risky right now? Please comment if you know more about the potential changes to the generic drug business in Quebec.
Franco-Nevada Corp [FNV.TO]
“Franco-Nevada Corporation (Franco-Nevada) is a gold-focused royalty and stream company. The Company’s additional interests are in platinum group metals and other resource assets. The Company operates in the segment of resource sector royalty/stream acquisitions and management activities. The Company’s business model provides investors with gold price and exploration optionality. The Company has a diversified portfolio of royalties and streams by commodity, geography, revenue type and stage of project. Its assets include Gold (the United States), Gold (Canada), Gold (Australia), Gold (Rest of World), Platinum Group Metals, Other Minerals, and Oil and Gas. The Company’s projects include Goldstrike complex, Gold Quarry, Marigold, Pinson, Sterling, Sandman, Robinson, Sudbury basin, Golden Highway, Musselwhite, Hemlo, Hardrock, Duketon, Henty, Red October, Edna May, Wiluna, Palmarejo, Sabodla, Subika, Edikan, Cerro Moro and Edson property.”A
Franco-Nevada Corp has increased its dividend for 8 consecutive calendar yearsB and as of August 31, 2016 yielded 1.3%B. They have a 5 year dividend growth rate of 22.6%B. They recently recorded a dividend increased in June 2016 when the quarterly dividend was increased by 4.8% from $0.21 to $0.22. I don’t plan on investing in this company as the dividend yield is low and the payout ratio is high.
Corby Spirit and Wine Ltd [CSW-A.TO]
“Corby Spirit and Wine Limited, formerly Corby Distilleries Limited, is a marketer of spirits and imported wines. Its segments include Case Goods and Commissions. The Case Goods segment produces and distributes the Company’s beverage alcohol brands. The Commissions segment represents non-owned beverage alcohol brands in Canada. The Company is affiliated with Pernod Ricard S.A. (PR). Its portfolio of owned-brands includes J.P. Wiser’s Canadian whisky, Lamb’s rum, Polar Ice vodka and McGuinness liqueurs. Through its affiliation with PR, the Company also represents international brands, such as Absolut vodka, Chivas Regal, The Glenlivet and Ballantine’s Scotch whiskies, Jameson Irish whiskey, Beefeater gin, Malibu rum, Kahlua liqueur, Mumm champagne, and Jacob’s Creek, Wyndham Estate, Stoneleigh, Campo Viejo, Graffigna and Kenwood Vineyards wines. Its products are also exported for sale to the United States, Europe and other international markets.”A
Corby Spirit and Wine Ltd has increased its dividend for 5 consecutive calendar yearsB and as of August 31, 2016 yielded 3.5%B. They have 5 and 10 year dividend growth rates of 6.3%B and 3.3%B respectively. Corby Spirit and Wine Ltd’s most recent dividend increase was 5.6% when they recorded a quarterly dividend of $0.19 in November 2014 which was an one cent increase from the prior dividend of $0.18. If they fail to increase their dividend this year they will lose their 5 year streak. Their payout ratio is 85%B which is on the high side so I won’t be investing. Also their dividend growth rates aren’t as high as I’d like them to be. If their payout ratio drops and they get back to meaningful dividend increases then I’ll reconsider them at that time.
Nevsun Resources Ltd [NSU.TO]
“Nevsun Resources Ltd is a Canada-based base metals mining company. The Company is engaged in the acquisition, exploration, development and operation of mineral property interests. Its segment is the mining business in Africa. Its principal property is the Bisha Property, which hosts a gold, copper and zinc deposit, and includes satellite volcanogenic massive sulfides (VMS) deposits at Harena, Northwest, Hambok, Aderat and Asheli. The Company’s principal mining operation is the Bisha Mine, an open pit copper-zinc mine. The Company owns the Mogoraib River Exploration License, which covers an area of approximately 41.1 square kilometers. The Bisha Mine is located approximately 150 kilometers west of Asmara, over 40 kilometers southwest of the regional town of Akurdat and approximately 50 kilometers north of Barentu, the regional or zone Administration Centre of the GashBarka District, in Eritrea. The Company also develops the Timok copper and gold project, which is located in Serbia.”A
Nevsun Resources Ltd has increased its dividend for 5 consecutive calendar yearsB, but will lose this streak if they fail to increase their dividend this year. Their last dividend increase was recorded in December 2014 when their quarterly dividend was increased 14.3% from $0.035 to $0.040. As of August 31, 2016 Nevsun Resources Ltd yielded 5.1%B. They have a high payout ratio of 200%B and erratic earnings so I won’t be investing.
After going through these eight companies I was surprised by the number of companies that I wasn’t interested in, despite the fact that they have no long term debt. Of the eight companies only three piqued my interest. Just goes to show that while a strong financial position is important, it is not the only thing to consider. I found Jean Coutu Group the most intriguing and I plan to do some more research on the company. I’d consider Gluskin Sheff + Associates Inc. and Corby Spirit and Wine Ltd more seriously if they can bring down their payout ratios. That said I already have a lot of financial companies in my portfolio so I doubt Gluskin Sheff + Associates Inc. will make it onto my short list.
Of these eight companies, which interest you the most?