The Globe and Mail attempts to identify sustainable dividend income
from Canadian free cash-flow
generators in its Tuesday edition. The Globe's Craig McGee writes in the Number Cruncher column that since the end of 2015, the Canadian market has
staged an impressive comeback
so far this year. A significant contribution
of the returns have
come from natural-resource sectors
such as energy, metals and
mining, but if we look deeper, we can also see
that dividend-paying companies
have been outperforming those
without payouts. For instance,
the S&P/TSX dividend composite
total return index is up 16.9 per
cent year-to-date while the full
S&P/TSX composite total return
index is up 14.8 per cent.
Investors are often tempted by
the highest yielding firms, but
chasing high dividend yields
alone could be very risky if those
payouts are not sustainable. Firms that are able to generate
and increase free cash flow, that
is, operating cash flow left over
after capital expenditures, may
be in a better position to maintain
their distributions.
Mr. McGee's Canadian dividend firms with strong free cash flow are Cogeco Communications, IGM Financial, TMX Group, Enbridge Income Fund Holdings and BCE.
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