Disclosure: The author owns a position in Fortis Inc., which is mentioned in the column.
What are we looking for?
The best Canadian dividend growth stocks.
More about today's screen
Dividend growth has become a popular strategy for investors these days, as the long-term results show steady performance that is better than the S&P/TSX composite index. Today's screen has outperformed the S&P/TSX composite by 5.4 per cent annualized since Dec. 31, 1991.
We'll use a screen provided by Morningstar CPMS, which is a Toronto-based equity research and portfolio analysis firm. It keeps a database of about 660 of the largest and more liquid stocks in the country and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
Today's screen is called the Dividend Growers Portfolio and looks for the best combination of expected dividend yield, dividend growth over the last five years, dividend growth for the next year versus trailing four quarters, cash flow growth year-over-year and return on equity.
Stocks that have high dividend payouts as a percentage of earnings or cash flow are screened out. Also screened out are stocks that have recently delivered a negative earnings surprise of more than 10 per cent or that have earnings estimates that have been revised lower by analysts by more than 5 per cent.
The list is sorted by rank in this strategy, that is, Rogers is the best combination of all these factors.
What did we find?
CPMS senior consultant Jamie Hynes points out that Fortis is an exceptional stock on this list as it has been in the portfolio since 1998. It has returned 10.6 per cent annually since then and its dividends have grown 7.7 per cent annualized. Its yield on the price in 1998 is now 11.2 per cent (not adjusted for inflation).
Scott Adams