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Best of both worlds: Six growth stocks that offer sustainable dividends

What are we looking for?

Canadian and U.S. growth stocks that do double duty as income stocks – with highly sustainable dividends.

The screen

For many investors, growth stocks are the antithesis of income stocks – but you can have it both ways.

The best growth stocks are defined by earnings growth that consistently beats the market average. In order to do that, most growth stocks pay only small dividends or none at all. Instead, they re-invest their cash flow in the business, to promote their growth. That's a key component of future success. But there are a select few stocks that have the cash flow to finance their rapid growth and at the same time reward shareholders with steady dividend income.

We started our search with our extensive list of dividend-paying Canadian and U.S. companies, before singling out those with earnings that have beat the market average. On top of that, they have above-average growth prospects, and, more uniquely, highly sustainable dividends.

Our TSI Dividend Sustainability Rating System awards points to a company based on eight key factors:

  • One point for five years of continuous dividend payments – two points for more than five years;
  • Two points if those payments have been raised in the past five years;
  • One point for management’s public commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to currency exchange 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 to cover dividend payments;
  • One point if the company’s a leader in its industry.

Publicly traded companies with 10 to 12 points have the highest sustainability rating, while those with seven to nine points are above average; four to six points, average; and one to three points, below average.

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 the award-winning The Successful Investor and the TSI Dividend Advisor – the latest addition. TSI Network is affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated six stocks best positioned to reward investors with a special combination of growth and income. Wyndham Worldwide, for example, continues to build on its position as one of the world's largest hotel companies. But it also just raised its dividend, and its payout remains highly sustainable. All six of our top stocks appear in the accompanying table.

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

Scott Clayton, MBA, is senior analyst for TSI Network  and associate editor of several of its award-winning investing newsletters.

Stocks offering both growth and income

Ranking*CompanyTickerDividend Sustainability RatingMarket Cap. ($Bil)**Dividend Yield (%) Points
1North West Co.NWC-TAbove Average1.63.99
2TranscontinentalTCL.A-TAbove Average2.03.29
3Wyndham WorldwideWYN-NAbove Average10.52.38
4DorelDII.B-TAbove Average1.14.87
5ExtendicareEXE-TAverage0.94.76
6Chemtrade LogisticsCHE.UN-TAverage1.76.75

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.
**Market cap is in native currency.

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