7 Canadian Dividend All-Stars That Raised Their Dividends In March

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Includes: CNQ, DLMAF, EQGPF, FNLIF, HMCBF, SNCAF, STLJF, TCLAF, TD
by: Mat Litalien

Summary

Toronto Dominion and Canadian National Resources are dual-listed on both Canadian and US Stock Exchanges.

TD is currently trading at a slight premium to a number of metrics but remains a solid investment at these levels.

Despite appearing undervalued, investors should approach both Transcontinental and First National with caution.

Dividend growth investors such as myself look for quality companies that have a history of raising their dividends on a regular basis. Although not as comprehensive as the U.S. Dividend Champions list, Canada's dividend paying companies also present investors with dividend growth opportunities and have thus far received limited coverage on SA. This is the third of a monthly series that identify the most recent dividend increases of the Canadian Dividend All-Stars, companies who have raised their dividend for at least 5 consecutive years.

Of note, U.S.-based investors should be aware that they are subject to a 15% withholding tax on dividends paid within a taxable account. On the other hand, should U.S.-based investors hold their Canadian dividend paying stocks in their retirement accounts, there are no withholding taxes on dividends paid due to our mutual tax treaty.

MARCH UPDATES

Seven Canadian dividend all-stars raised their dividends in the month of March. Of note, two of the companies that raised their dividends in March are dual-listed, which means they can be found on both the major U.S. and Canadian stock exchanges, while the others can be purchased by U.S. investors either on the TSX or through the OTC market. These companies are: Toronto Dominion Bank (NYSE:TD) and Canadian National Resources (NYSE:CNQ).

Ticker

Company

Date

Yield

Old

New

Inc.

(OTCPK:SNCAF)

SNC-Lavalin

Mar-02

1.85

0.2600

0.2730

5.00

TD

Toronto Dominion Bank

Mar-02

3.26

0.5500

0.6000

9.09

CNQ

Canadian Natural Resources

Mar-02

2.54

0.2500

0.2750

10.00

(OTCPK:TCLAF)

Transcontinental Inc

Mar-03

3.41

0.1850

0.2000

8.11

(OTCPK:FNLIF)

First National Financial Corp

Mar-15

5.88

0.1417

0.1542

8.82

(OTC:STLJF)

Stella-Jones Inc.

Mar-17

1.00

0.1000

0.1100

10.00

(OTC:DLMAF)

Dollarama Inc.

Mar-30

0.41

0.1000

0.1100

10.00

Of Note, all companies on this list payout their dividends in Canadian funds.

VALUATIONS

Here is a closer look at a few of the companies on this list that can be considered either fairly or undervalued.

Toronto Dominion Bank- Sector: Financial Services: Industry: Global Banks

(Streak: 6 Years)

Much has been written about TD over the past month given the recent Wells Fargo-like scandal that they have been caught up in. The good news is that after an immediate knee jerk reaction and a few downgrades, TD presented a nice entry point for investors. The bank has not fully recovered since the issue was first announced, down 5.13% as of writing. However, this may have less to do with the scandal and more as a result of the fact that banks in general have been under pressure.

From a valuation perspective, TD is currently trading slightly above their historical P/E averages (see F.A.S.T. Graph below) and their current share price of C$66.61 is also slightly above their Graham Value of C$63.42 per share, a 5% premium. Finally, their PEG ratio is currently 1.36 and a PEG ratio of greater than 1.0 typically signifies that the company's earnings growth are not keeping up with the company's share price and as such can be considered overvalued. Overall, it appears that TD appears to be trading at a slight premium at these prices. That being said, TD has decent exposure to rising rates with their US operations and as such is well positioned to grow earnings. Despite its slight premium, TD is a solid investment at these levels.

Transcontinental Inc. (TSE: TCL.A) - Sector: Consumer Cyclical: Industry: Publishing

(Streak: 15 Years)

Transcontinental is a printing company with operations in print, flexible packaging, publishing and digital media on both sides of the border. Transcontinental has been a very reliable dividend growth payer as their most recent 8.11% increase is in line with both their 3-year and 5-year averages of 7.7% and 8.2%.

With significant operations in the print industry, it is not surprising to see that Transcontinental appears to be undervalued on a number of metrics. When looking at the F.A.S.T. Graph below, you can see that they are trading at a discount to their historical P/E ratio. Likewise, they are trading at an approximately 2% discount to their Graham number of C$25.25. There is no use calculating their PEG ratio as their earnings in both 2017 and 2018 are expected to decrease YOY as per analysts' estimates. Likewise, since 2013 operation cash flow has decreased steadily YOY and as of end of year 2016, dropped to a low of C$3.52/share from 2013's high of C$5.33/share, a decrease of approximately 34%. Despite their dividend growth stability, Transcontinental operates in an industry that continues to struggle, and both their earnings and cash flow are on the decline. Until they can show a return to growth, Transcontinental may in fact be deserving of its current undervalued status.

First National Financial Corp. (TSE: FN) - Sector: Financial Services: Industry: Specialty Finance

(Streak: 5 Years)

First National is an underwriter and servicer of prime residential and commercial mortgages. They provide mortgage-financing solutions to the mortgage market in Canada and they also invest in short-term mortgages, usually for 6 to 18 month terms. If their inclusion here seems familiar, it's because I have talked about two very similar companies, Equitable Group (OTC:EQGPF) (article here) and Home Capital Group (OTCPK:HMCBF) (article here). They are all currently depressed due to the uncertainty around the Canadian housing market.

It is therefore not surprising that when looking at the F.A.S.T. Graph below, you can see that they are trading at a discount to their historical P/E ratio.

However, unlike Equitable Group and Home Capital Group, they are actually trading at a 16% premium to their Graham number of C$22.77. Finally, their PEG ratio is currently 0.56 and a PEG ratio lower than 1.0 typically signifies that the company's share price is not keeping up with its earnings growth and as such can be considered undervalued. Once again, First National is another play on the Canadian housing market. That being said, if I was to choose between First National, Equitable Group and Home Capital Group, First National would be at the bottom of my list. At current prices, both ECQ and HCG provide better value and have more upside should the housing pundits who point to a crash are continued to be proven wrong. In fact, I anticipate initiating a position in both of these companies this coming week as contrarian plays. Of note, on top of a possible housing crash and new government-imposed housing regulations, HCG in particular is fairly risky as they have undergone significant challenges and last week they fired their CEO.

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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.