What are we looking for?
The best conservative Canadian stocks.
More about today's screen
We're looking for stocks that aren't volatile, aren't expensive, have consistent earnings and have a decent, affordable dividend.
We'll look for help today with today's screen from Morningstar CPMS, which has set up a conservative screen using seven criteria.
To make the list of conservative stocks, it must have the best combination of: a low beta to the market (meaning it is amongst the less volatile stocks); low earnings volatility or variability; a low price to earnings ratio (it also must be positive); a low price to book value per share; a favourable trend for earnings revisions in the past three months and positive earnings surprises. It also must have a dividend yield above 1 per cent and a dividend payout ratio less than 80 per cent.
CPMS takes all the criteria and ranks them against about 200 other Canadian large and mid-cap stocks.
What did we find out?
There are plenty of conservative stocks on the Canadian landscape to choose from with yields of 3 per cent or more and dividend payout ratios under 70 per cent.
Next week we'll look at aggressive stocks, which is the second half of one of CPMS's best-performing portfolio strategies as of late called the Core 20. Half of the portfolio is conservative and the other half aggressive.
Risk is minimized by diversification in three ways: maximum number of stocks per sector is 25 per cent of the portfolio, style is half aggressive and half conservative and each stock gets an equal weighting in the portfolio.
For investors who want to avoid risk as much as possible, the conservative part of the portfolio can be taken as its own strategy.
"A stand-alone 20-stock model based on the conservative half of the Core 20 beats the S&P/TSX composite index by almost 3 per cent annualized over 25 years after accounting for a 2-per-cent annual management fee," said Jamie Hynes, a senior consultant at CPMS. Average annual turnover is just 27 per cent over this period, he said, meaning just one in four stocks is traded each year.
Disclosure: I own shares of Fortis Inc. and Power Corp.
Stocks in this column include:
Cdn. Utilities Ltd. , Emera Inc. , Fairfax Financial , George Weston Ltd. , BCE Inc. , Sun Life Financial , Telus Corp. , Cdn. Tire Corp. Ltd. , Power Financial Corp. , National Bank of Canada , Magna Intl. Inc. , Great West Lifeco , IGM Financial Inc. , CIBC , TransCanada Corp. , Power Corp. of Canada , Fortis Inc. , Shoppers Drug Mart Corp. , Bank of Montreal , Metro Inc.
- Canadian Utilities Ltd$32.69+0.24(+0.74%)
- Emera Inc$42.73+0.43(+1.02%)
- Fairfax Financial Holdings Ltd$670.000.00(0.00%)
- George Weston Ltd$109.73-2.31(-2.06%)
- BCE Inc$57.130.00(0.00%)
- Sun Life Financial Inc$43.850.00(0.00%)
- TELUS Corp$41.97+0.18(+0.43%)
- Canadian Tire Corporation Ltd$124.220.00(0.00%)
- Power Financial Corp$33.790.00(0.00%)
- National Bank of Canada$43.64+0.22(+0.51%)
- Magna International Inc$60.11+0.16(+0.27%)
- Great-West Lifeco Inc$36.090.00(0.00%)
- IGM Financial Inc$37.960.00(0.00%)
- Canadian Imperial Bank of Commerce$99.94+0.34(+0.34%)
- TransCanada Corp$42.430.00(0.00%)
- Power Corporation of Canada$31.180.00(0.00%)
- Fortis Inc$36.840.00(0.00%)
- Bank of Montreal$76.64-0.41(-0.53%)
- Updated November 27 4:00 PM EST. Delayed by at least 15 minutes.