Dividends from companies in cyclical industries, whose profits move up and down with the overall economy, tend to be less predictable than payments from more-stable businesses such as utilities. These two cyclical companies, however, have a long history of maintaining their payments, or even raising them, during economic downturns.
IMPERIAL OIL LTD. $40(Toronto symbol IMO; Cyclical- Growth Dividend Payer Portfolio; Resources sector; Shares outstanding: 840.4 million; Market cap: $33.6 billion; Dividend yield: 1.6%; Dividend Sustainability Rating: Above Average; www.imperialoil.ca) is Canada’s secondlargest integrated oil company, after Suncor Energy. U.S.- based ExxonMobil (New York symbol XOM) owns 69.6% of Imperial.
With the July 2017 payment, the company raised its quarterly dividend by 6.7%. Investors now receive $0.16 a share instead of $0.15. The new annual rate of $0.64 yields 1.6%.
In the quarter ended September 30, 2017, Imperial produced an average of 390,000 barrels a day, down 0.8% from 393,000 a year earlier. A fire at the big Syncrude processing facility in northern Alberta (25% owned by Imperial) offset rising production at its main oil sands operations.
The lower output also caused Imperial’s overall revenue to fall 3.8%, to $7.2 billion from $7.4 billion a year earlier. However, higher crude prices caused cash flow per share to jump 26.5%, to $1.05 from $0.83.
The company plans to spend an average of $2 billion per year on exploration and upgrades to its operations through 2021. That spending could reduce the $1 billion that Imperial typically spends each year on share buybacks. However, they’re unlikely to stop the company from continuing to increase its dividend.
The stock trades at a reasonable 12.7 times Imperial’s 2018 projected cash flow of $3.15 a share.
Imperial Oil is a buy.
TRANSCONTINENTAL INC. $25(Toronto symbol TCL.A; Cyclical-Growth Portfolio, Consumer sector; Shares outstanding: 77.4 million; Market cap: $1.9 billion; Dividend yield: 3.2%; Dividend Sustainability Rating: Above Average; www.tctranscontinental.com) is Canada’s leading printer of advertising flyers, magazines, books and newspapers. It also makes plastic food packaging.
Transcontinental last increased its dividend by 8.1% with the April 2017 quarterly payment of $0.20. The new annual rate of $0.80 yields 3.2%.
In April 2017, as part of a plan to shrink its newspaper publishing operations, The company sold 27 newspapers in Atlantic Canada. It’s also selling 93 of its local and regional newspapers in Ontario and Quebec.
Hearst Communications Inc., which publishes the San Francisco Chronicle newspaper, recently cancelled its printing contract with Transcontinental, effective April 2, 2018. As a result, the company will receive an early termination fee of $42.8 million U.S.
Due to the sale of its newspaper operations, the company’s revenue for its 2017 fourth quarter, ended October 31, 2017, fell 5.1%, to $527.2 million from $555.6 million a year earlier. On a comparable basis, revenue improved 0.6%.
Overall earnings in the quarter fell 10.8%, to $68.3 million from $76.6 million. Per-share earnings declined 11.1%, to $0.88 from $0.99, on fewer shares outstanding. The lower earnings are mainly due to a drop in demand for its commercial printing services.
The company has $348.3 million in debt, or a reasonable 18% of its market cap. It holds cash of $247.1 million, or $3.20 a share.
Transcontinental will probably earn $2.60 a share in fiscal 2018, and the stock trades at just 9.6 times that estimate.
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