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Number Cruncher

Stock screens for investment ideas from professional investors. Exclusive to subscribers of Globe Unlimited.

(Getty Images/iStockphoto)
(Getty Images/iStockphoto)

Number Cruncher

Catnip for dividend hunters: Stocks that are high yielding and highly liquid Add to ...

What are we looking for?

Canadian stocks that have high yields as well as high trading volume. These stocks may appeal to dividend hunters looking for highly liquid investments.

How we did it

Craig McGee, senior consultant at Morningstar Canada, winnowed down the CPMS Canadian universe of stocks to the 100 securities with the highest average monthly volume (in dollars) and a dividend yield above 1 per cent.

He further refined the list by searching for the 20 stocks with the highest yields and payout ratios of 80 per cent or less. (The payout ratio is the percentage of operating cash flow that a company is paying out in terms of dividends.)

This strategy is aimed at finding stocks that pay a decent dividend, trade frequently and have sufficient cash flow to allow them to raise dividends if management chooses.

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

The companies on our final list have expected dividend yields ranging from 4.4 per cent to 8.3 per cent – catnip for yield hunters. But how reliable would a portfolio of these high dividend plays be?

To provide a historical perspective, Mr. McGee ran the strategy through the Morningstar backtest engine, assuming a hypothetical investor selected a portfolio of 20 stocks at the beginning of 1986, then reselected the portfolio each year according to the principles outlined above.

He found that between 1986 and this past July 31 the strategy would have posted an annualized total return of 13 per cent, compared to the 8.1 per cent produced by the S&P/TSX Total Return Index. The hypothetical portfolio would have generated positive results in 23 of the 26 years, while the benchmark had 18 positive years. (The results do not include trading or other transaction costs.)

Past performance is no guarantee of future results. But history does provide encouraging signals for those intrigued by this strategy.



Canadian stocks with high yields and high trading volumes

Canadian stocks with high yields, high trading volumes
Company Symbol Market cap. ($ mil.) Price $ (Sept. 28, 2012)
Bonavista Energy Corp. BNP-T 2,951 17.44
Veresen Inc. VSN-T 2,534 12.89
Penn West Petroleum Ltd. PWT-T 6,672 13.99
TransAlta Corp. TA-T 3,780 15.05
Poseidon Concepts Corp. PSN-T 1,185 14.61
Pengrowth Energy Corp. PGF-T 3,351 6.63
Bell Aliant Inc. BA-T 6,217 27.29
Artis REIT AX.UN-T 1,803 16.38
Sun Life Financial Inc. SLF-T 13,557 22.82

Source: Morningstar Canada


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