WHAT ARE WE LOOKING FOR?
On Thursday, we ran a list of U.S. "dividend all-stars" compiled by dividendinvestor.com. These are companies that have been paying - and raising - dividends for decades.
Today we'll turn our attention to the Canadian market.
Because Canada has a much smaller universe of stocks to choose from, there aren't many companies with long records of uninterrupted dividend increases. So we'll use a different methodology.
THE SCREEN
We'll use the screener tool at dividendinvestor.ca, which allows users to choose dividend stocks based on various criteria.
We want to stick with large, established companies, so we'll restrict our search to firms listed on the Toronto Stock Exchange with a market capitalization of at least $1-billion.
We want our companies to pay more than a token dividend, so we'll include only those yielding at least 2.5 per cent. And we want the dividend to be growing, so we'll demand a five-year annualized dividend growth rate of at least 5 per cent.
Finally, we want some comfort that the dividend won't be cut, so we'll look for a payout ratio - the percentage of trailing 12-month profit paid out as dividends - of no more than 80 per cent. We'll also disqualify any company that cut its dividend in the past five years.
THE RESULTS
The big banks have gone a few years without dividend hikes, but most made the list thanks to a strong tailwind of dividend hikes before the financial crisis hit.
Unlike the banks, companies such as Fortis, TransCanada and Enbridge did continue raising their dividends during the downturn, underlining the recession-resistant nature of pipelines and utilities.
The cable and telecom sectors are also fertile ground for dividend hikes, as Rogers Communications, Shaw Communications and Telus demonstrate. BCE has also been hiking its dividend, but the company doesn't show up on the list, presumably because it briefly suspended its dividend in 2008 when it was the target of an aborted takeover.
Dividend hikes are a sign of financial strength. But consider them a starting point for further research about a company.
John Heinzl