What are we looking for?
Good Canadian dividend growth stocks. More about today's screen
More about today's screen
We'll work with Morningstar CPMS on this screen today. In the past, we've done dividend screens with CPMS that looked for dividend growth, but also other factors such as cash flow growth and return on equity.
Today, we'll look simply at dividend growth to see if it can stand up alone as a strategy.
We'll look for stocks that have had dividend growth in the past year, count only equities and no trusts, and limit the screen to members of the S&P/TSX composite index.
More about CPMS
CPMS is a Toronto-based equity research and portfolio analysis firm owned by Morningstar Canada. It maintains a database of the largest and more liquid Canadian stocks, plus another 2,100 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find out?
CPMS created an equal-weight portfolio using this strategy going back to 1991. Rebalancing and members are selected once a year at the end of every year and dividends are reinvested at the same time.
CPMS found the portfolio only had a negative return in two years out of 19, versus six negative years for the S&P/TSX total return index.
It found that the strategy has returned 13.9 per cent annualized since inception, compared with 9.7 per cent for the S&P/TSX total return index. Over the past 10 years, it has returned 12 per cent annualized, against 6.6 per cent for the benchmark.
You might think it has done best most recently given the heightened popularity of dividend strategies, but it has returned just 6.6 per cent the past five years, just slightly better than the 6.5 per cent for the benchmark.
The table shows the longest-tenured members of the portfolio, but 48 members of the composite qualified for the portfolio in 2011.
"This test reinforces the power of compounding returns," said Jamie Hynes, senior consultant at CPMS. "Thirty of 48 stocks that qualify for inclusion in this portfolio in 2011 have qualified for at least the last five years. Investors are benefiting not only from capital gains and dividends received, but also from dividends being reinvested."
A key column in the table is the yield on cost. The best yield on cost in the group belongs to SNC-Lavalin Group Inc. , which has a dividend yield of just 1.1 per cent, but a yield on its 1993 dividend of 33 per cent.
Disclosure: I own shares of Fortis Inc.
Stocks in this column include:
Fortis Inc. , Cdn. Utilities Ltd., A , SNC-Lavalin Group Inc. , Atco Ltd., I , Imperial Oil Limited , Emera Inc. , Empire Company Ltd., A , Metro Inc., A , Toromont Industries Ltd , Cdn. National Railway , Enbridge Inc. , AGF Management Ltd. , Saputo Inc. , Ensign Energy Services , Cdn. Natural Resources , CCL Industries Inc., B , Finning International , Suncor Energy Inc. , Transcontinental Inc. , TransCanada Corporation
- SNC-Lavalin Group Inc$45.74+0.40(+0.88%)
- Fortis Inc$40.58-0.03(-0.07%)
- Canadian Utilities Ltd$36.28-0.04(-0.11%)
- Atco Ltd$41.88+0.40(+0.96%)
- Imperial Oil Ltd$40.13-0.24(-0.59%)
- Emera Inc$46.26+0.24(+0.52%)
- Empire Company Ltd$21.13+0.03(+0.14%)
- Toromont Industries Ltd$37.10-0.62(-1.64%)
- Canadian National Railway Co$76.17+0.23(+0.31%)
- Enbridge Inc$50.35-0.60(-1.18%)
- AGF Management Ltd$5.050.00(0.00%)
- Saputo Inc$40.60+0.22(+0.54%)
- Ensign Energy Services Inc$7.08-0.19(-2.61%)
- Canadian Natural Resources Ltd$35.54-0.40(-1.11%)
- CCL Industries Inc$234.05-9.02(-3.71%)
- Finning International Inc$20.99-0.67(-3.07%)
- Suncor Energy Inc$32.81-1.37(-4.01%)
- Transcontinental Inc$18.66+0.45(+2.47%)
- TransCanada Corp$51.68+0.14(+0.27%)
- Updated May 5 3:04 PM EDT. Delayed by at least 15 minutes.