What are we looking for?
Low volatility and high wealth creation stocks on the S&P/TSX composite index.
The screen
We searched S&P/TSX for low beta stocks offering a strong economic profitability and attractive dividend growth rates:
- A beta of minimum minus 0.5 and maximum 0.5. A stock with a beta greater than 1 is considered more volatile than the market; less than 1 means less volatile;
- 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;
- All companies must pay a dividend;
- An annualized dividend growth rate of 5 per cent or more a year on a one-, two-, three- and four-year period.
The price-to-earnings ratio is displayed for informational purposes only.
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 6,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer (stockpointer.ca) also allows investors to create personalized filters and build custom portfolios.
What did we find?
Only 10 companies of the S&P/TSX composite index fit our list of criteria. Enghouse Systems Ltd., an IT company based out of Markham, Ont., appears on top of the list with the highest EPI and return on capital, but also with the highest P/E ratio. For readers who follow closely our Number Crunchers, you'll note this company has shown up recurrently in the results from different filters over the past two months.
Ritchie Bros. Auctioneers Inc. also offers a high economic performance and very attractive dividend growth rates that tend to increase every year, and its stock trades at a reasonable P/E multiple of 19.3.
Also worth mentioning: WestJet Airlines Ltd, whose stock took a nosedive in 2015 but has started recovering, offers double-digit dividend growth rates, a decent economic performance and an incredibly low P/E multiple of 6.7, probably reflecting the market's concerns about Western Canada's economic outlook, to which WestJet is very exposed.
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.