What are we looking for?
Canadian dividend-payers with momentum.
The screen
Despite it being a challenging year for Canadian equity investors, there have been pockets of strength across most sectors. The strongest sectors in the S&P/TSX composite have been consumer discretionary and information technology with year-to-date returns (to Nov. 11) of 13 per cent and 7.5 per cent, respectively.
The top three stocks in the index have been Uni-Select Inc. (112-per-cent return YTD), a firm specializing in distribution of auto parts and equipment, CCL Industries Inc. (72-per-cent return YTD), which deals with specialty packaging and labelling worldwide, and Constellation Software Inc. (66-per-cent return YTD), which is engaged in the acquisition and growth of software companies.
In order to search for companies that may continue to trend higher based on earnings and price momentum, my colleague Lawrence Ullman and I used Morningstar CPMS to rank Canadian dividend-paying firms with the best mix of:
- three-month consensus earnings estimate revision;
- latest quarterly earnings surprise;
- three- and 12-month total returns.
We limited results to companies with market caps above $200-million.
More about the Ullman Group
The Ullman Group is an independent provider of strategic private capital management services to high net worth individuals, corporations, endowments, charities and foundations.
What we found
We used CPMS to perform a back-test starting Oct. 31, 2005, selecting an equally weighted portfolio of the top 15 stocks and replacing them when they fell outside of the top 40 per cent of the universe.
Over the full period, this strategy would have generated an annualized total return of 14.9 per cent compared with 5.6 per cent for the S&P/TSX composite total return index. Over the past three years, the strategy would have posted an annualized return of 14.9 per cent compared with minus 4.6 per cent for the index.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates. Investors should contact a professional or do their own research before investing in any of the stocks shown here.
Craig McGee, CFA, is a portfolio manager and Lawrence Ullman, MBA, is a director, wealth management and portfolio manager with the Ullman Group at Richardson GMP in Toronto.
Richardson GMP Limited is a member of Canadian Investor Protection Fund. Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.