What are we looking for?
Securities known as American depositary receipts, or ADRs, can offer the best of both worlds for Canadian investors mindful of diversification: foreign equity exposure that is easily accessible to North Americans. Today we focus on ADRs showing high levels of wealth creation for their shareholders – as well as attractive dividend growth rates.
The screen
We searched all ADR stocks (about 800) covered by StockPointer by looking at the following metrics:
- Market cap of $5-billion (U.S.) or greater;
- An economic performance index, or EPI (return on capital divided by cost of capital) above 1.0. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
- A return on capital of 10 per cent or greater;
- A dividend yield of 1 per cent or greater;
- A dividend growth rate of 5 per cent a year or greater over the past four years;
- Positive free cash flow to capital. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, pay and/or increase dividends, reduce debt, etc. A positive figure is good; 5 per cent and above is excellent.
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA (economic value-added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 8,500 companies (Canadian and U.S. stocks and ADRs), StockPointer (stockpointer.ca) also allows investors to create personalized filters and build custom portfolios.
What did we find?
Only eight companies fit our criteria.
Novo Nordisk A/S, a Denmark-based health-care company specializing in diabetes-care medication and devices, comes up as the best economic performer of the group with an EPI of 6.6. Its huge free-cash-flow-to-capital ratio allows the management to regularly and aggressively increase the dividends paid, and buy back shares. I should add that the company has no long-term debt.
Also worth mentioning is Advanced Semiconductor Engineering, an independent semiconductor assembling and manufacturing test services provider based out of Taiwan. Within the group, the company offers the second-best EPI, the highest dividend yield and very attractive dividend growth rates.
Investors are advised to do additional research prior to investing in any of the companies mentioned.
Jean-Didier Lapointe is a financial analyst for StockPointer at Inovestor Inc.