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.
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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
| Canadian stocks with high yields, high trading volumes | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company | Symbol | Market cap. ($ mil.) | Price $ (Sept. 28, 2012) | Expected div. per share | Expected yield | Payout ratio | ||||||
| Bonavista Energy Corp. | BNP-T | 2,951 | 17.44 | 1.44 | 8.3% | 56.9% | ||||||
| Veresen Inc. | VSN-T | 2,534 | 12.89 | 1.00 | 7.8% | 76.9% | ||||||
| Penn West Petroleum Ltd. | PWT-T | 6,672 | 13.99 | 1.08 | 7.7% | 38.4% | ||||||
| TransAlta Corp. | TA-T | 3,780 | 15.05 | 1.16 | 7.7% | 34.7% | ||||||
| Poseidon Concepts Corp. | PSN-T | 1,185 | 14.61 | 1.08 | 7.4% | 43.9% | ||||||
| Pengrowth Energy Corp. | PGF-T | 3,351 | 6.63 | 0.48 | 7.2% | 34.0% | ||||||
| Bell Aliant Inc. | BA-T | 6,217 | 27.29 | 1.90 | 7.0% | 46.0% | ||||||
| Artis REIT | AX.UN-T | 1,803 | 16.38 | 1.08 | 6.6% | 78.5% | ||||||
| Sun Life Financial Inc. | SLF-T | 13,557 | 22.82 | 1.44 | 6.3% | 80.0% | ||||||
| Cominar REIT | CUF.UN-T | 2,981 | 24.12 | 1.44 | 6.0% | 77.0% | ||||||
| Dundee REIT | D.UN-T | 3,647 | 37.66 | 2.23 | 5.9% | 75.6% | ||||||
| Capital Power Corp. | CPX-T | 1,482 | 21.29 | 1.26 | 5.9% | 29.6% | ||||||
| Granite Real Estate Inc. | GRT-T | 1,650 | 35.22 | 2.00 | 5.7% | 70.4% | ||||||
| BCE Inc. | BCE-T | 33,478 | 43.25 | 2.27 | 5.3% | 28.6% | ||||||
| Russel Metals Inc. | RUS-T | 1,655 | 27.52 | 1.40 | 5.1% | 51.5% | ||||||
| Manitoba Telecom Srvcs. | MBT-T | 2,252 | 33.75 | 1.70 | 5.0% | 26.4% | ||||||
| Shaw Communications | SJR.B-T | 8,927 | 20.12 | 0.97 | 4.8% | 29.0% | ||||||
| Brookfield Renewable | BEP.UN-T | 4,335 | 29.70 | 1.42 | 4.8% | 61.3% | ||||||
| Cineplex Inc. | CGX-T | 1,855 | 29.90 | 1.35 | 4.5% | 43.0% | ||||||
| Thomson Reuters Corp. | TRI-T | 23,462 | 28.42 | 1.25 | 4.4% | 35.5% | ||||||
| Source: Morningstar Canada |
Canadian stocks with high yields and high trading volumes
- BNP-T
- VSN-T
- PWT-T
- TA-T
- PSN-T
- PGF-T
- BA-T
- AX.UN-T
- SLF-T
- CUF.UN-T
- D.UN-T
- CPX-T
- GRT-T
- BCE-T
- RUS-T
- MBT-T
- SJR.B-T
- BEP.UN-TCGX-T
- TRI-T
