What are we looking for?
Dividend stocks for the serious growth investor. We’re hunting down Canadian and U.S. names that meet the disciplined, methodical approach of successful growth investor Martin Zweig – plus provide some decent income.
Mr. Zweig was very diligent in his stock pickings, and the results paid off. In the 15 years that the Hulbert Financial Digest has monitored his highly regarded Zweig Forecast, its investing strategy has ranked as No. 1 among newsletters, producing 15.9-per-cent annualized returns.
Validea Canada, which has a distribution agreement with The Globe and Mail, bases one of its guru-based investing strategies on Mr. Zweig and has supplied this screen to us. Since the model portfolio’s inception in 2003, it has posted annualized returns of 7.1 per cent, nearly double that of the S&P 500.
Mr. Zweig’s strategy required that a stock meet numerous earnings-related criteria. It had to demonstrate persistent earnings growth over the past several years. But these profits had to be accelerating during the most recent quarters, and driven by a pickup in sales, not cost cuts.
He also didn’t want to overpay for this growth. So any stock selling for a price-to-earnings ratio of more than three times the market average, or greater than 43 regardless of the market P/E, was avoided. He also required debt levels to be low. There are 13 criteria in all that Validea uses in this portfolio, which is based on the teachings in Mr. Zweig’s book, Winning on Wall Street.
For a stock to make this screen, it had to meet at least 80 per cent of the required criteria. The dividend yield had to be at least 2.5 per cent with a minimum market capitalization of $200-million.
What we found
Using such rigorous criteria means not many dividend stocks made the list. But we’re left with a handful of names that have a lot of promising growth characteristics, as well as producing some pretty attractive yields.
Mortgage underwriter First National Financial Corp., for instance, yields a handsome 7.5 per cent. And it also scores amongst the highest for relative strength, which is a measure of the relative price performance versus other stocks in the market, explained Validea vice-president Justin Carbonneau. First National’s relative strength of 82 means the stock has outperformed 82 per cent of all other stocks over the last 12 months.
One huge U.S. company made the list: General Electric Co. Its dividend yield of 3.3 per cent isn’t the biggest, but it would seem to be one of the safer stocks here given its wide diversification both geographically and within industries. The various metrics, including a reasonable projected price-to-earnings ratio of 14, also seem to suggest growth-oriented investors should give it some thought.
Dividend stocks ... from a growth investor's perspective
|Company name||Ticker||Mkt Cap ($-mil)||Rel. Str.|
|First National Financial Corp.||FN-T||1,037||82|
|Enbridge Income Fund Holdings Inc.||ENF-T||916||55|
|Alaris Royalty Corp.||AD-T||454||86|
|General Electric Co.||GE-N||218,744||79|
|Cincinnati Financial Corp.||CINF-Q||6,576||84|
|Questcor Pharmaceuticals, Inc.||QCOR-Q||1,538||25|
|Main Street Capital Corp.||MAIN-N||941||87|
|Meridian Bioscience, Inc.||VIVO-Q||839||60|
U.S. companies listed are in U.S. dollars. Source: Validea Canada
|Company name||Ticker||Mkt Cap ($-mil)||Rel. Str.||Proj. PE||1-yr EPS Growth||5-yr EPS Growth||P/S||P/B||Div. Yield||P/CF||Prof. Margin||ROE|
|First National Financial Corp.||FN-T||1,037||82||10||-27%||26%||1.8||4.9||7.50%||9.4||14.60%||46%|
|Enbridge Income Fund Holdings Inc.||ENF-T||916||55||23||265%||5%||16||1||5.40%||15.5||N/A||7%|
|Alaris Royalty Corp.||AD-T||454||86||26||264%||N/A||9.3||1.9||5.20%||25.1||161.00%||16%|
|General Electric Co.||GE-N||218,744||79||14||10%||-8%||1.5||1.8||3.30%||8.7||9.90%||12%|
|Cincinnati Financial Corp.||CINF-Q||6,576||84||24||130%||-28%||1.7||1.2||4.00%||16.5||9.10%||7%|
|Questcor Pharmaceuticals, Inc.||QCOR-Q||1,538||25||8||215%||N/A||3.6||12.6||3.00%||9.1||39.50%||113%|
|Main Street Capital Corp.||MAIN-N||941||87||15||42%||11%||11.2||1.7||6.10%||12.4||120.80%||23%|
|Meridian Bioscience, Inc.||VIVO-Q||839||60||23||24%||4%||4.8||6.2||3.70%||25.7||19.20%||19%|
|Great Southern Bancorp, Inc.||GSBC-Q||343||72||8||141%||-3%||1.5||1.1||2.90%||5.6||21.00%||17%|