What are we looking for?
Big, solid, secure dividend payers. With Europe's debt crisis flaring up again and last week's gloomy U.S. jobs report, the markets are making us nervous. In fact, if we hadn't kicked the habit, we'd be reaching for a cigarette. It's obviously time for some stability in our portfolio.
More about today's screen
Craig McGee, senior consultant at CPMS Morningstar Canada, created today's offering, which is based on the CPMS U.S. Large Cap Income strategy. He screened large U.S. stocks for those with improving expectations for future earnings, as well as high dividend yields compared to their peers, and high returns on both assets and equity.
Since inception in 1994, the 10-stock U.S. Large Cap Income strategy has generated an annualized return of 14.1 per cent compared to an 8.3 per cent total return for the S&P 500.
More about CPMS
CPMS, a division of Morningstar Canada, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers through software and Web-based tools. It covers more than 700 Canadian and 2,200 U.S. stocks, and adjusts for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
What did we find out?
The strategy – along with most other dividend-focused styles – is lagging the rest of the U.S. market so far this year, but could be well positioned if investors start moving away from riskier, more volatile stocks. Year to date, the portfolio is up 5.2 per cent while the S&P 500 Total Return index is up 11.8 per cent.
If times turn tough, the strategy has the benefit of putting an investor in giant companies with proven franchises. Microsoft, Intel and UPS will survive any downturn. But ethical investors might want to take note of the high proportion of cigarette makers on this list: Philip Morris, Lorillard and Altria all have substantial interests in peddling nicotine. We're against such things on grounds of morality, you understand, but for now few products are better calculated to soothe an anxious portfolio.
Ian McGugan