What are we looking for?
To conclude our three-part series on income stocks, my associate, Allan Meyer, and I thought we would take a closer look at small-cap Canadian dividend payers using our investment philosophy focused on safety and value.
The screen
We start with Canadian-listed equities with a market capitalization of $200-million to $999-million.
(We covered larger companies in our previous Number Crunchers.)
Some investors, such as Allan and myself, love income. We like to get paid while we wait and dividends generally reflect safety and stability. Here is today's criteria:
- Yield is based on the share price divided by the projected annual dividend payments. All securities listed yield 5 per cent or more.
- Payout is the dividend payment divided by earnings. A lower number is preferred and implies the dividend is safer. It could also signal a potential future dividend increase, while a number over 100 could signal the potential for a cut. We’ve capped the payout at 100.
- Price-to-earnings is the share price divided by the earnings per share. It is a valuation metric – the lower the number, the better the value.
- Earnings momentum is the change in annual earnings over the last quarter. A positive number indicates earnings are growing; the opposite is true for a negative number. All securities shown have positive earnings momentum.
- Lastly, we looked at debt-to-equity: A smaller ratio indicates lower levels of debt and can be viewed as a sign of safety. A number under 100 implies a company has enough equity to pay its debt obligations. It is important to note that metrics and their implications can vary widely across industries and sectors.
What did we find?
Former income trusts and REITs dominate the list for their high yields. Pure Industrial is worth a look but an ETF could be a way to play the REIT sector without exposure to individual security risk. BMO, First Asset and iShares offer options – ticker symbols ZRE, RIT and XRE, respectively.
Valener and Rogers Sugar look interesting due to their high yields and low payout and debt levels. Callidus Capital could be a candidate for deep-value investors.
Investors should contact an investment professional or conduct further research before buying any of the securities listed here.
Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.