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Number Cruncher

Stocks with yields you can depend on Add to ...

What are we looking for?

Reliable yield.

Given the market volatility of late, you may well be looking for a few more names to own that will let you sleep a little better each night. Finding reliable yield is one way to do that.

The difference between high-yield and reliable yield is not one to look past. A high yield, as tempting as it might look, is almost always a sign that someone in the market thinks there's danger lurking below the surface. A dividend cut, a suspension or something entirely worse too often follows a soaring yield.

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Searching out reliable yield on the other hand should lead you to names with decidedly less potential for drama - companies capable of spinning off money without endangering their business. But, how to find them?

We turned to CPMS, an equity research and portfolio analysis firm owned by Morningstar Canada, to revisit a screen named Income Seekers that they created to help find reliable yield.

How does the screen work?

There are seven criteria that CPMS relies on to determine if a stock belongs in the Income Seekers portfolio. The thresholds look like this:

  • Dividend yield: More than 2 per cent.
  • Payout ratio: Dividends must not exceed 80 per cent of earnings per share.
  • Relative payout ratio: The current ratio must be no more than 20 per cent above the historical median payout ratio.
  • Dividend momentum: Must be flat or up in the past year.
  • Dividend growth: Must be flat or up over the past five years.
  • Earnings growth: The five-year growth rate must exceed the median of the 650 Canadian companies CPMS tracks.
  • Earnings growth volatility: Five-year volatility must be below the median for the Canadian firms CPMS tracks.

The list here has been sorted by dividend yield.

What did we find?

As you would expect, blue-chip financials, industrials and utilities are all well represented.

And it's partly a testament to the way this list is put together, but it's a list that's remained remarkably stable since the first time Number Cruncher looked at it more than a year ago.

Jamie Hynes, senior account manager with CPMS, noted in an e-mail that almost all the names on that first list are still here, and a couple of the names that didn't make the grade this time around, such as Canadian Pacific Railway and Canadian National Railway, failed to make the cut only because their share-price appreciation left them with a current dividend yield below the 2-per-cent threshold here.

The other thing to take a close look at is that total return column. The contributions that dividend yields can make to a portfolio, over even a short period, are nothing to sneeze at. In fact, they're just the sort of thing that might let you sleep at night.

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