The week of March 6th to March 10th is a relatively slow week for Canadian Dividend All-Stars who are due to report earnings. Only four are scheduled to release earnings and of those, only one is expected to announce a bump in dividends while two others are far more difficult to predict. Let's take a look at their streaks and estimate what their raise will be.
Last Week - Results
Before we get to this week's anticipated dividend raises, last week I estimated that Bank of Nova Scotia (NYSE:BNS), SNC-Lavalin Group Inc. (OTCPK:SNCAF), Toronto-Dominion Bank (NYSE:TD) and Transcontinental Inc. (OTCPK:TCLAF)(OTC:TCLCF) would all raise their dividends. The good news is all four came through and announced dividend increases. Here are my estimates vs. actuals:
Three of the four companies came through with dividends in line with my estimates and one, SNC-Lavalin, surprised to the upside with a 5% increase which was slightly above what I was expecting. Of note, I had also questioned whether Canadian Western Bank (OTCPK:CBWBF) would announce a raise, but for the 6th straight quarter they left their quarterly dividend unchanged at C$0.23.
ZCL Composites Inc. (OTC:ZCLCF) (TSE:ZCL) - Current Streak - 5 YRS, Current Yield - 2.62%
Earnings Release Date: Wednesday, March 8
ZCL Composites is one of Canada's newest Dividend All-Stars having reached 5 straight years of dividend increases in 2016 and for those interested I have recently published an article about them. Since they first announced a dividend in March 2012, they have consistently raised dividends during the month of March and DGI will be looking for them to maintain this consistency.
What can investors expect: As a new dividend payer, ZCL has posted some impressive increases over the past few years. Last year, they raised their quarterly dividend 60% and their 3YR average is 42.8%. ZCL investors were also treated to C$0.50/share special dividend in March of last year. ZCL's yield is a respectable 2.62%, their current payout ratio is approximately 54% and their payout as a percentage of operating cash flows is only 29%. As such, ZCL is well positioned to continue raising dividends; however, it is difficult to predict their DGR moving forward. ZCL estimates that they can achieve 10% earnings growth over the long term and a prudent approach would be for them to raise dividends in line with this growth. However, ZCL has proved aggressive in the past and I could see a C$0.02/share bump which would be a 25% increase over their current quarterly payout of C$0.08/share.
Will They or Won't They?
Earnings Release Date: Tuesday, March 7
Alaris Royalty Corp. is a Canada-based company providing capital to private businesses in the form of preferred limited partnership interests and long-term license and royalty agreements. Alaris has a current 9-year streak on the line, but has left their dividend unchanged at C$0.135/share for the past 20 months (Alaris pays dividends on a monthly basis). Alaris's last dividend raise came in June 2015.
What can investors expect? At 7.36%, Alaris already has a relatively high yield which can be a worrisome sign. Their current payout ratio is already fairly high at 90.5% and their payout as a % of operating cash flow is 75.8%. The good news is that through the first 9 months of 2016, Alaris increased OCF by 28% over 2015. Although I am unable to find a clear dividend policy, Alaris has positioned themselves as "The optimal dividend stream". It is apparent that Alaris is committed to its dividend and is very focused on cash flows. As such, I think investors are better to pay attention to their payout as a % of OCF as opposed to earnings. With that in mind, should their cash flow in the 4th quarter continue to show significant improvement over last year, it is quite possible that Alaris announce a dividend raise. Alaris's last raise was a minimal monthly C$0.005/share increase which was a 3.85% increase. Another C$0.005/share increase to a new monthly C$0.14 payout, although conservative, would be in line with their last raise.
Enercare Inc. (OTCPK:CSUWF) (TSE:ECI) - Current Streak - 6 YRS, Current Yield - 4.84%
Earnings Release Date: Tuesday, March 7
Enercare is a Canada-based company that is engaged in the provision of home services (water heaters, furnaces, air conditioning, HVAC ) and sub-metering services for electricity, thermal and water. Much like Alaris, Enercare pays a monthly dividend and their current payout is C$0.077/share. The reason why Enercare is on the "Will they or won't they" list is because prior to 2016, they consistently declared a monthly dividend raise during the month of March. In 2016; however, they pushed back the declaration of their dividend increase to April.
What can investors expect? Enercare's payout ratio as compared with EPS is currently extremely high at 159%; however, their payout ratio as a percentage of cash flows is a much more respectable 57%. Last year Enercare raised their monthly dividend 10% and their 3YR and 5YR growth rates are 9.3% and 6.7%. Should Enercare remain consistent with last year and raise dividends by 10%, it would result in a new monthly rate of C$0.085.
Dividend Streaks Should Continue
Unlike last week which proved to be fairly predictable, this week has proved to be a challenge estimating who will raise dividends and by how much. ZCL is a relatively new player on the DG scene and although they are well positioned to continue returning cash to shareholders, it is difficult to predict if they will remain aggressive or turn more conservative. As monthly dividend payers, Alaris and Enercare also prove difficult to predict as monthly dividend payers are typically less consistent and have more flexibility as to when dividends are declared. Of note, both Alaris and Enercare are good examples of why investors should not simply rely on payout ratios as a percentage of earnings.
I believe using cash flows is a much better indicator of the sustainability of a company's dividend as you are comparing cash in versus cash out. Earnings on the other hand include many non-cash items that have no bearing on a company's ability to pay a dividend. Despite both companies sporting high payout ratios as a percentage of earnings when dividends paid are compared to OCF, the results are much better. It will be interesting to see how this week unfolds and I am particularly interested in the actions of ZCL Composites. As mentioned in my previous article, although I find the stock overvalued at current prices, I have added them to my watch list as I believe they are well positioned to become a solid DG company.
If you would like to receive updates for any of my upcoming articles, please click the "Follow" text at the top of this page next to my profile.
Disclosure: I am/we are long TD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.