What are we looking for?
Highly sustainable dividends from companies positioned to indirectly profit from the quickly growing industry.
The screen
Which marijuana producers will see their shares rise to new highs, and which will see them go up in a puff – or two – of smoke? That's hard to say, given hot-house market caps, low barriers to entry and government regulations yet to be written. Instead, we think a far better way to profit from the coming boom is to invest in companies with an established base of business outside of pot production, but set to indirectly profit from booming demand. They must also offer sustainable dividends.
The search started with our extensive list of dividend-paying Canadian and U.S. companies. We identified those best-placed to offer low-risk gains from rising marijuana demand.
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 is 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 award-winning The Successful Investor, and The TSI Dividend Advisor is the latest addition. TSI Network is affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated five stocks primed to maintain strong dividends and indirectly tap the marijuana market: Scotts Miracle-Gro is already a leader in hydroponic equipment; AbbVie's FDA-approved anti-nausea drug, Marinol, should see additional sales as cannabis gains mainstream acceptance; tobacco giant Altria is best-placed for marijuana distribution and marketing; Loblaw's Shoppers Drug Mart has already applied to dispense medical marijuana; and PepsiCo offers consumers a range of Frito-Lay snack foods – including its Munchies brand. All five of our top stocks appear in the accompanying table.
We advise investors to do additional research on investments we've identified.
Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.
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