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Deere & Co. has bought back its own stock over the past year and grown its dividend 13.7 per cent over the past five years. (Toby Talbot/AP)
Deere & Co. has bought back its own stock over the past year and grown its dividend 13.7 per cent over the past five years. (Toby Talbot/AP)


A 12-stock portfolio built on buybacks, dividend hikes Add to ...

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.

What are we looking for?

North American companies that have bought back their own stock, and also increased their dividend every year for the past five years. As investors we should always be conscious of firms that buy back their own shares – management feel very bullish about their company’s prospects.

The screen

My colleague Rob Belanger and I started with companies greater than $1-billion in market capitalization and sorted them from the largest to the smallest.

The EV/EBITDA (enterprise value divided by earnings before interest, taxes, depreciation, and amortization) is one of the most commonly used valuation metrics. We are looking for a low number. Price to free cash flow (P/FCF) compares a corporation’s stock price to its free cash flow, which is operating cash flow minus capital expenditures. A high ratio indicates that the stock price is expensive relative to its cash flow. A smaller ratio is preferred. The companies that made our screen had to have bought back their own stock in the previous 12 months.

These companies also had to have grown their dividend at least 10 per cent over the past five years, and the current yield had to be more than 2 per cent.

What did we find?

Deere & Co. manufactures machinery for the agriculture, construction and forestry industries. The company has the best EV/EBITDA on our screen, followed by Occidental Petroleum.

For more than 160 years, Western Union has been providing fast and reliable ways for its customers to move money around the world. The company scores very well in the EV/EBITDA, and the P/FCF ratios, and has increased the dividend a total of 65.7 per cent in the past five years.

Two of the more overvalued companies according to our screen are Walgreen, the largest drug retailing chain in the United States, and Analog Devices. Analog is a world leader in the design, manufacture and marketing of a broad portfolio of high performance integrated circuits.

Rogers Communications was the only Canadian company to make our list.

Contact an investment professional or conduct further research before investing in any of the companies listed here.

Firms that have bought back their own stock in past year

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