What are we looking for?
Dividend stocks that can grow their bottom lines.
In this age of paltry returns from bonds, stocks with attractive yields have been selling like proverbial hotcakes. But dividend-paying stocks with a leavening of growth potential may be tastier yet, at least to discerning investors.
How we did it
Our friend Craig McGee, senior consultant at CPMS Morningstar Canada, took us on a tour of the Morningstar Canada Dividend Target 30 Index, which reflects the performance of 30 dividend-paying, Canada-based equities.
To build the index, CPMS uses proprietary rules to screen for stocks with above-average yields, strong returns on equity, high cash flows relative to debt and growing earnings and expectations.
To qualify for inclusion in the dividend index, a stock must be one of the 100 Canadian stocks with the highest 12-month average trading volume and have an expected dividend yield greater than 1 per cent. The index is made up of the top 30 issuers that meet the screening requirements; the holdings are equally weighted and rebalanced quarterly.
The table shows the 20 top-ranking securities in the index that have had no worse than a negative 5 per cent change in consensus earnings estimates over the past 90 days.
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its investment research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.
What we found
Over the past year, the 30-stock strategy posted a return of 12.2 per cent versus 9.6 per cent for the S&P/TSX Total Return index. For the past five years, the strategy’s annualized return was 4.5 per cent compared with the index’s minus 0.9 per cent.
Investors who want to implement the strategy can do so through the First Asset Morningstar Canada Dividend Target 30 ETF. Remember, though, that past performance is no guarantee of future results.
Morningstar Canada Dividend Target 30 Index (Top 20)
|1||Canadian Oil Sands Ltd.||COS-T||7.10%|
|2||Crescent Point Energy||CPG-T||7.69%|
|3||Magna Int'l Inc.||MG-T||1.85%|
|4||Bank of Montreal||BMO-T||4.92%|
|7||Royal Bank of Canada||RY-T||4.20%|
|9||Potash Corp. of Sask.||POT-T||3.49%|
|10||Tim Hortons Inc.||THI-T||1.94%|
* n/c = non calculable due to no long-term debt. Grades relative to 100 stocks with highest average volume and greater than 1% yield (A = good; E = poor). Source: Morningstar Canada
5 Yr EPS
|1||Canadian Oil Sands Ltd.||COS-T||7.10%||0.92x||19.53%||4.00%||D-|
|2||Crescent Point Energy||CPG-T||7.69%||1.07x||3.65%||6.56%||D-|
|3||Magna Int'l Inc.||MG-T||1.85%||20.57x||13.87%||5.84%||A+|
|4||Bank of Montreal||BMO-T||4.92%||1.18x||15.28%||-0.49%||C+|
|7||Royal Bank of Canada||RY-T||4.20%||1.07x||19.45%||-0.18%||C+|
|9||Potash Corp. of Sask.||POT-T||3.49%||0.99x||26.19%||-2.52%||C+|
|10||Tim Hortons Inc.||THI-T||1.94%||1.06x||35.31%||-1.36%||B+|
|11||Great-West Lifeco Inc.||GWO-T||4.41%||1.04x||15.93%||2.27%||C-|
|12||Bank of Nova Scotia||BNS-T||4.22%||0.97x||16.33%||-0.19%||C+|
|13||Shoppers Drug Mart||SC-T||2.53%||n/c *||14.33%||-0.67%||C-|
|14||Power Financial Corp.||PWF-T||4.65%||0.86x||14.71%||0.19%||C-|
|15||IGM Financial Inc.||IGM-T||4.79%||0.61x||16.66%||0.48%||C-|
|16||Husky Energy Inc.||HSE-T||4.29%||1.13x||10.43%||13.11%||E+|
|18||ARC Resources Ltd.||ARX-T||4.49%||0.98x||4.63%||38.54%||E-|
- Canadian Oil Sands Ltd$8.96+0.10(+1.13%)
- Crescent Point Energy Corp$15.15+0.51(+3.48%)
- Magna International Inc$45.48-0.13(-0.29%)
- Bank of Montreal$74.33-0.18(-0.24%)
- Rogers Communications Inc$47.95-0.79(-1.62%)
- Canadian Imperial Bank of Commerce$89.57-0.26(-0.29%)
- Royal Bank of Canada$71.14+0.15(+0.21%)
- Bce Inc$58.16+0.65(+1.13%)
- Potash Corporation of Saskatchewan Inc$23.27+0.18(+0.78%)
- Great-West Lifeco Inc$34.12-0.17(-0.50%)
- Bank of Nova Scotia$56.80-0.06(-0.11%)
- Power Financial Corp$31.53-0.10(-0.32%)
- IGM Financial Inc$35.29+0.41(+1.18%)
- Hanwei Energy Services Corp$0.080.00(0.00%)
- Shaw Communications Inc$24.04-0.10(-0.41%)
- ARC Resources Ltd$18.38+0.09(+0.49%)
- TELUS Corp$40.45+0.43(+1.07%)
- Pembina Pipeline Corp$31.19-0.30(-0.95%)
- First Asset Morningstar Can Div Tgt 30 Idx ETF$8.87+0.02(+0.23%)
- Updated February 5 1:35 PM EST. Delayed by at least 15 minutes.