Go to the Globe and Mail homepage

Jump to main navigationJump to main content

(B Szewczyk/Photos.com)
(B Szewczyk/Photos.com)

Number Cruncher

Profit growth: Looking for dividend stocks that deliver Add to ...

What are we looking for?

Dividend stocks are everyone’s favourite investments these days, but obsessing over yields and payout ratios can lead you to miss an important part of the total return picture: growth.

A stock with a modest dividend but a high growth rate can be superior to one that boasts a high dividend but no capacity to expand its earnings. To demonstrate this, we went searching for dividend-paying stocks that also have a demonstrated ability to grow their profits.

More Related to this Story

How we did it

Craig McGee, senior consultant at Morningstar Canada, scoured the Morningstar database for Canadian and U.S. stocks that pay dividends and are relatively cheap given their growth and dividend rates.

To find promising candidates, he used the PEGY ratio. This consists of each stock’s price-to-expected-earnings ratio divided by the sum of its growth rate plus dividend yield. (To determine the growth rate, Mr. McGee used a weighted average of growth over the past five years, expected growth over the upcoming year, and expected growth for the following year.)

He looked for stocks with the best combinations of low PEGY ratios, high expected dividend yields, positive revisions to analysts’ earnings expectations over the past 60 days and low earnings variability over the past five years.

To make the cut, a stock had to have:

-a market capitalization greater than $1-billion;

-a PEGY ratio less than 3

-an expected dividend yield greater than 3 per cent;

-a positive 60-day estimate revision;

-a positive five-year earnings growth rate;

-earnings variability in the top 75 per cent of the database.

No more than four stocks from any one sector were included.

More about Morningstar

Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its investment research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.

What we found

The 25 U.S. and Canadian companies that made the cut include some names that might not be familiar to you, such as Scana Corp. (a power utility in the southern United States) and Aimia Inc. (a developer of customer loyalty programs).

Of course, you should do your own research before buying any stock. While the firms on this list all appear to possess attractive combinations of dividends and growth, there may be less obvious factors that will affect their investment appeal.

 

Dividend stocks that have shown profit growth

Rank Company Symbol Mkt. cap ($ mil.) PEGY ratio
1 N.Y. Community Bancorp NYB-N 5,757 1.1
2 PDL BioPharma PDLI-Q 1,025 0.2
3 First Capital Realty FCR-T 3,527 0.1
4 RioCan REIT REI.UN-T 8,144 0.4
5 Canada Bread Co. CBY-T 1,116 1.5
6 Brookfield Office Prop. BPO-T 8,608 0.4
7 Reynolds American Inc. RAI-N 25,468 1.4
8 Lockheed Martin Corp. LMT-N 29,911 1.5
9 Scana Corp. SCG-N 6,249 1.9
10 Leggett & Platt Inc. LEG-N 3,312 1.3

Note: Grades relative to 3,022 stocks in the combined CPMS database; A = Good, E = Poor.

Source: Morningstar Canada

Print

Download table as a CSV file

View full table

  • NYB-N
  • PDLI-Q
  • REI.UN-T
  • CBY-T
  • FCR-T
  • BPO-T
  • RAI-N
  • LMT-N
  • LEG-N
  • SCG-N
  • AIM-T
Live Discussion of NYB on StockTwits
More Discussion on NYB-N
Live Discussion of PDLI on StockTwits
More Discussion on PDLI-Q
Live Discussion of REI.UN on StockTwits
More Discussion on REI.UN-T
Live Discussion of CBY on StockTwits
More Discussion on CBY-T
Live Discussion of FCR on StockTwits
More Discussion on FCR-T
Live Discussion of BPO on StockTwits
More Discussion on BPO-T
Live Discussion of RAI on StockTwits
More Discussion on RAI-N
Live Discussion of LMT on StockTwits
More Discussion on LMT-N
Live Discussion of LEG on StockTwits
More Discussion on LEG-N
Live Discussion of SCG on StockTwits
More Discussion on SCG-N
Live Discussion of AIM on StockTwits
More Discussion on AIM-T

Topics:

In the know

Most popular video »

Highlights

More from The Globe and Mail

Most Popular Stories