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Six stocks for staying calm and cool in a red-hot housing market

What are we looking for?

We're looking for stocks that tap into Canada's hottest housing market. At the same time, they're primed to yield highly sustainable dividends – even if government manages to turn down the heat.

The screen

All levels of government are under pressure to cool Toronto's residential real estate prices. But low interest rates and high demand mean prices will likely continue to rise.

It's increasingly difficult to win a bidding war and directly profit from soaring prices. But finding housing-related stocks that offer growth and dividend income is also a challenge.

Starting with our list of dividend-paying companies, we singled out those now profiting from the Greater Toronto Area boom. We then focused on identifying stocks with highly sustainable dividends.

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

  • One point for a long-term (at least five years) record of dividends – two points for more than five years of continuous payments.
  • Two points if it has raised the payment 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 foreign 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 sufficient to cover dividend payments.
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends or the highest sustainability rating. 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. The

TSI Dividend Advisor is the latest addition to the family. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated six stocks that profit from red-hot residential real estate and provide solid income. Long focused on commercial real estate, RioCan REIT and Allied REIT, for example, are now adding residential units to their Toronto properties. Heavy-equipment provider Toromont also continues to capitalize on residential construction. Retailers Leon's and Canadian Tire are outfitting new residences – for both renters and homeowners.

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 TSI Dividend Advisor.

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Ranking *CompanyTickerDividend Sustainability RatingMarket Cap ($Bil.)Dividend YieldPoints
1Canadian TireCTC.A-THighest11.71.610
2Allied Properties REITAP.UN-TAbove Average3.24.19
3Toromont IndustriesTIH-TAbove Average3.61.79
4Home Capital HCG-TAbove Average1.44.78
5RioCan REITREI.UN-TAbove Average8.65.37
6Leon's FurnitureLNF-TAbove Average1.22.97

 Dividend Advisor

* Home Capital data as of Wednesday’s close; 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.

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