What we’re looking for
The credit markets have a lot to say about corporate debt – which can provide useful signals about our confidence in investing in the stocks of those corporations, too. Today, we take a closer look at Canadian companies with healthy credit profiles, with the help of Jamie Hynes, sales director with S&P Capital IQ.
How we did it
Mr. Hynes devised a stock screen combining Standard and Poor’s Entity Credit Ratings with S&P Capital IQ financial data. He screened the Capital IQ database for TSX-listed stocks with “investment grade” S&P credit ratings. Under S&P’s credit rating system, these are the grades considered investment quality:
AAA – Extremely strong capacity to meet financial commitments (this is the highest possible rating);
AA – Very strong capacity to meet financial commitments;
A – Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances;
BBB – Adequate capacity to meet financial commitments, but more subject to adverse economic conditions;
BBB-[minus] – Considered the lowest investment grade by market participants.
More about S&P Capital IQ
S&P Capital IQ offers a comprehensive set of tools for fundamental analysis of global securities as well as idea generation and workflow management. Its Web- and Excel-based platform provides access to both real-time and historical information on companies, markets, transactions and people around the world.
What we found
Some 80 TSX-listed companies have an S&P 500 investment grade credit rating; Mr. Hynes has provided us with the 20 highest-rated companies on the accompanying chart. He noted that all 20 firms pay a dividend; only two of these companies have failed to raise their dividends over the past five years.
Seventeen of the 20 have generated positive returns (both on a price basis and a total-return basis) so far this year. The average year-to-date total return is 12.7 per cent – handily beating the 5.1-per-cent total return for the S&P/TSX composite index.
As always, you should do your own research before buying any of the stocks listed here.
Editor's note: Atco Ltd.’s five-year average annual dividend growth rate is +8.7 per cent. An incorrect figure appeared in an earlier version of the table.
Canadian stocks with the highest 'investment grade' credit rating
|Company Name||Ticker||$ Price (Nov. 30)||Market Cap ($-mil)|
|Imperial Oil Ltd.||IMO-T||42.35||35,896|
|Royal Bank of Canada||RY-T||58.9||85,128|
|The Bank Of Nova Scotia||BNS-T||56||66,336|
|The Toronto-Dominion Bank||TD-T||82.98||76,195|
|Bank of Montreal||BMO-T||59.67||38,829|
|Canadian Imperial Bank of Commerce||CM-T||80.2||32,441|
|Great-West Lifeco Inc.||GWO-T||23.52||22,342|
|IGM Financial Inc.||IGM-T||40.6||10,259|
|Industrial Alliance Insur. & Fin. Svcs., Inc.||IAG-T||28.99||2,627|
|Power Financial Corp.||PWF-T||26.51||18,774|
* Long term local currency rating; Source: S&P Capital IQ
|Company Name||Ticker||$ Price (Nov. 30)||Market Cap ($-mil)||S&P Entity Credit Rating*||Dividend Yield [trailing] (%)||Payout Ratio [LTM] (%)||5 Yr Dividend Growth % [LTM] (%)||% Price Change (YTD)||% Total Return (YTD)|
|Imperial Oil Ltd.||IMO-T||42.35||35,896||AAA||1.1||10.6||6.7||-6.7||-5.7|
|Royal Bank of Canada||RY-T||58.9||85,128||AA-||4.1||44||4.6||13.3||18.1|
|The Bank Of Nova Scotia||BNS-T||56||66,336||AA-||4.1||44.1||5||10.2||13.6|
|The Toronto-Dominion Bank||TD-T||82.98||76,195||AA-||3.7||29.9||6.8||8.8||12.8|
|Bank of Montreal||BMO-T||59.67||38,829||A+||4.8||38.1||1.3||6.8||12|
|Canadian Imperial Bank of Commerce||CM-T||80.2||32,441||A+||4.7||46||4.1||8.7||12.7|
|Great-West Lifeco Inc.||GWO-T||23.52||22,342||A+||5.2||58.2||3.7||15.3||21.8|
|IGM Financial Inc.||IGM-T||40.6||10,259||A+||5.3||70.1||4.7||-8.2||-4.6|
|Industrial Alliance Insur. & Fin. Svcs., Inc.||IAG-T||28.99||2,627||A+||3.4||58.3||6.4||10.3||14.5|
|Power Financial Corp.||PWF-T||26.51||18,774||A+||5.3||55.3||4.7||3.8||8|
|Canadian Utilities Ltd.||CU-T||67.24||8,605||A||2.6||34.9||7.2||9.3||12.2|
|E-L Financial Corp. Ltd.||ELF-T||410||1,648||A||0.1||6.1||0||20.6||20.7|
|National Bank of Canada||NA-T||77.58||12,501||A||4.1||34.5||6.6||7.5||10.9|
|Power Corp. of Canada||POW-T||25||11,695||A||4.6||52||5.7||5||8.8|
|Sun Life Financial Inc.||SLF-T||27.19||16,229||A||5.3||96.5||2.4||43.9||53.1|
|Canadian National Railway Co.||CNR-T||89.34||38,561||A-||1.7||23.9||12.8||11.5||13|
|Potash Corp. of Sask., Inc.||POT-T||38.43||33,112||A-||2.2||15.1||41.1||-8.7||-7.6|