Which of these dividend stocks is a better buy in this volatile market?

Positive returns have been scarce. Roughly one-third of stocks in the S&P/TSX composite index delivered gains in 2015, and year-to-date in 2016, just 15 per cent of stocks in the index are in positive territory. So which stocks are analysts expecting to deliver the highest returns over the next year?

To answer that question, I looked at the expected 12-month returns for stocks based on the average one-year price targets from analysts. Today, with a focus on income investing, I looked at the S&P/TSX Canadian Dividend Aristocrats index, comprising 68 companies that have increased their dividends every year for at least five years.

The top 25 forecasted performers, ranked by potential price appreciation, from the S&P/TSX Canadian Dividend Aristocrats index are listed in the table. One stock highlighted below may serve as a springboard for further research; I've also included a noteworthy alternative.

Genworth MI Canada Inc. (MIC-TSX) is the largest private residential mortgage insurer in Canada. The stock price has been drifting lower, making its 12-month target price appear very compelling; however, I would argue that it's perhaps artificially compelling, given this company's significant exposure to the Albertan economy. As of June 30, 2015, management estimated that 20 per cent of its outstanding mortgages were from Alberta, whose economy has been hit especially hard by the commodities rout. In terms of new insurance written, in the third-quarter, 21 per cent stemmed from Alberta, down from 27 per cent in 2014.

Dividend policy

The company offers shareholders an attractive yield, paying a quarterly dividend of 42 cents a share, or $1.68 a year, equating to an annualized yield of more than 7 per cent. The dividend appears sustainable with the payout ratio at 39 per cent year-to-date as of the end of the third-quarter. Over the past five years, the company has raised its dividend each year, and also paid shareholders special cash dividends in 2014 as well as in 2011. However, while investors have received dividend income, the declining stock price has more than offset the dividend payout.

Valuation

The stock trades at a price-to-book value of 0.6 times the consensus 2016 estimate, at historically low levels.

Analysts' recommendations

According to Bloomberg, there are two analysts with "buy" recommendations, five analysts with "hold" recommendations and one "sell" recommendation. The average one-year price target is $32.19, implying a stock price return of more than 40 per cent.

The consensus earnings-per-share (EPS) estimate is $3.88 in 2015, relatively unchanged from 2014, and the Street forecasts EPS will decline to $3.63 in 2016.

Trend watch

Shares, which closed Tuesday at $22.63, are under significant pressure, declining by approximately 14 per cent year-to-date. This is on top of a decline of 28 per cent in 2015. Technically speaking, there is large downside support at about $22, and failing that, around $20, and upside resistance at $25.

The bottom line

While lofty target prices by analysts can be enticing, they can also be too aggressive and end up being trimmed. With respect to Genworth, its Albertan exposure is an overhang or challenge for the stock. While the stock appears inexpensive, investors could be waiting for a while before there's some improvement, and missing out on other opportunities. While the dividend is attractive and sustainable, I prefer to recommend stocks with strong and improving fundamentals.

For investors seeking a relatively defensive dividend stock, I recommend investors have a look at Fortis Inc. (FTS-TSX). While Fortis is a member of the Dividend Aristocrats index, it appears further down on the list, since it has a lower potential price return. The average one-year price target by analysts is $43.50, suggesting a respectable, and achievable, potential price return of approximately 13 per cent.

On a valuation basis, this St. John's-based utility company is trading at a price-to-earnings (P/E) multiple of less than 18 times the 2016 consensus earnings estimate, below its three-year and five-year historical average P/E multiples of just more than 19 times.

Furthermore, its dividend is attractive and growing. The company pays shareholders a quarterly dividend of 37.5 cents a share, or $1.50 a year, for an annualized yield of 3.9 per cent. It has increased its dividend annually for more than 40 consecutive years. Looking forward, management anticipates it will be able to continue to expand its dividend, and has targeted an annual dividend growth rate of 6 per cent through to 2020.

While shares of Genworth have a higher 12-month target price by analysts combined with a higher dividend yield, I recommend income-seeking investors consider accumulating shares of Fortis instead, on dips in this volatile market. For Fortis, I see any share price weakness as market-driven rather than company-related, with dips in the price representing a buying opportunity that investors can capitalize on.

As always, I strongly encourage readers to consult a financial adviser, and to do their own proper due diligence before taking any investment action.

The author does not personally own shares in securities mentioned in this story.

Jennifer Dowty, CFA, Globe Investor's in-house equities analyst, writes exclusively for our subscribers at Inside the Market.