What are we looking for?
Sustainable dividends from downturn-tested IPOs with strong business models.
The screen
Generally, an initial public offering comes to market when it’s a good time for the company or its insiders to sell. That’s not necessarily a good time for you to buy. In fact, it’s often a bad time – case in point, this year’s sharp market slump and its punishing impact on recent IPOs.
Still, good companies with good prospects do go public every year. And key to distinguishing the good new issue from the bad new issue is waiting for a market downturn or broader economic slowdown to come along. That’s usually the best time for an assessment of the IPO’s performance and its prospects.
If the new issue’s business model has held up well (even if its stock price has dropped along with the market) that points to a brighter-than-average future ahead.
We started this search with an extensive list of dividend-paying IPOs in recent years, before singling out those with businesses that have fared well through the economic uncertainty while sustaining their dividends. Our system awards points to a stock based on key factors:
- One point for five years of continuous dividend payments – two points for more than five;
- Two points if it has raised the payment in the past five years;
- One point for management’s commitment to dividends;
- One point for operating in non-cyclical industries;
- One point for limited exposure to foreign currency 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 dividends;
- One point if the company’s an industry leader.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. 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, and the TSI Dividend Advisor. TSI Network is also affiliated with Successful Investor Wealth Management.
What we found
Our TSI Dividend Sustainability Rating System generated six stocks. Warner Music Group Corp. WMG-Q, headquartered in New York, is one of the world’s leading music entertainment companies. Warner launched its IPO in June, 2020. New Jersey-based Dun & Bradstreet Holdings Inc. DNB-N offers its customers access to comprehensive information and data on millions of global businesses. The company’s IPO began trading in July, 2020. Krispy Kreme Inc. DNUT-Q, based in Charlotte, N.C., is an international provider of doughnuts and other sweet treats. The company launched its IPO in July, 2021.
San Francisco’s Levi Strauss & Co. LEVI-N makes and sells denim jeans and related clothing. Levi’s went public in March, 2019. ADT Inc. ADT-N, based in Florida, is a leading provider of monitored security products and services to residential and commercial customers in the United States. The firm launched its IPO in January, 2018. (ADT’s Canadian operations were acquired by Telus Corp. in 2019.) And finally, Lexington, Ky.’s Valvoline Inc. VVV-N is a worldwide producer and distributor of automotive and industrial lubricants and more. The company went public in September, 2016, when Ashland Global Holdings Inc. sold a 17-per-cent stake in Valvoline through an IPO. In May, 2017, Ashland handed out its remaining Valvoline shares to its own investors.
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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Scott Clayton