The Globe and Mail

WHAT ARE WE LOOKING FOR?

Good solid dividends in this time of market turmoil. Sherry Cooper, who has been chief economist at investment dealer BMO Nesbitt Burns since 1983, espouses the value of good dividend stocks in her latest book New Retirement, How It Will Change Our Future. Dividends have a lower tax rate (25 per cent), she points out, but don’t limit them to taxable accounts. They’re good for registered retirement accounts, too.

“Blue-chip dividend-paying stocks should be considered in a long-term investment portfolio, including during retirement,” she writes. “The most favourable are those stocks with an attractive yield, a history of steady dividend growth above the rate of inflation, a low payout ratio, and an improving position in the marketplace.” Such stocks are arguably safer than corporate bonds, she says.

MORE ABOUT COOPER’S DIVIDEND SCREEN

In her book, Ms. Cooper screens for Toronto Stock Exchange-listed stocks that have a dividend yield of greater than 2.5 per cent, a five-year dividend growth greater than 10 per cent, a dividend payout ratio of less than 60 per cent, beta of less than one (a measure of low risk) and a positive 10-year trend in pretax margins. Ms. Cooper created the screen in July, when the market was obviously much different.

We’ve basically repeated her screen in the accompanying table, but with a couple of twists. First, we used the raw beta of the past six months (rather than Bloomberg’s forecast beta). Second, Bloomberg doesn’t easily have 10-year margin data available in its screening tool, so we didn’t screen companies according to this criteria. Instead, we have included average pretax margins of the past three and five years. As you can see, most of these companies appear to have stable margins.

• Table: View result set