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What are we looking for?

Dividend paying large-cap value companies in Canada that are considered undervalued based on relative valuation.

The screen

With 2017 just around the corner, the focus of today's screener is to find large-cap undervalued companies in Canada using Thomson Reuters's proprietary Relative Valuation StarMine model and adding a filter for dividend payers.

In the past 12 months, the large-cap relative valuation model portfolio for top-decile (top 10 per cent) scoring companies returned 37 per cent – 17 per cent more than the return of the S&P/TSX 60 on a total return basis during that same time period.

Our screen begins by looking for companies trading in Canada with a market capitalization above $3-billion that pay a dividend.

Next, we're applying a filter for companies that have a Relative Valuation StarMine Model score of above 85. StarMine's Relative Valuation model is a percentile (1 to 100) ranking of stocks based on components of valuation ratios.

Higher scores indicate the best value stocks. The overall score for a given stock is a blend of scores based on six components: enterprise value to sales, enterprise value to EBITDA, price to earnings, price to cash flow from operations, price to book and dividend yield.

The weight on each component in the overall score varies according to industry and stock-specific factors that capture key fundamental insights.

More about Thomson Reuters

Thomson Reuters delivers trusted news and intelligent information to more than one billion people in 140 countries every day. Our content, software and technology support the way professionals work in a rapidly changing, ever more complex world. Thomson Reuters Eikon is the platform used by financial and corporate clients to access top research, portfolio analytics, charting and screening for every asset class.

What did we find?

Using Thomson Reuters Eikon, our screen identified 13 companies that meet the screen criteria.

Sorting the list by Relative Valuation model ranking, Genworth MI Canada, a Canada-based private mortgage insurer, tops the list.

Fundamentally speaking, its future looks solid and is backed by healthy dividend of roughly 5 per cent and a respectable long term debt-to-equity ratio of 12 per cent.

Genworth recently announced a 5-per-cent increase in its dividend – the seventh consecutive increase since it became a public company in 2009.

This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio.

Investors should conduct further research before investing.

Patrick Gattuso, CFA, works in the financial and risk unit of Thomson Reuters and specializes in asset management.

Select large cap Canadian dividend stocks

CompanyTickerRel. Val. Model ScoreMarket Cap ($ Bil)Div. YieldDiv. Growth 3Y CAGRLT D/E (LTM)YTD Price Change
Genworth MI Canada IncMIC-T1003.14.7%10.1%12.3%27.8%
Power Corp. of CanadaPOW-T9612.64.0%1.7%112.9%4.8%
Canadian Apt. Ppties REITCAR.U-T944.14.0%3.2%82.8%11.9%
IGM Financial IncIGM-T929.55.7%1.5%181.7%12.1%
Power Financial Corp.PWF-T9224.44.4%2.0%73.9%7.4%
BCE Inc.BCE-T8949.84.5%5.4%95.7%7.1%
Magna International Inc.MG-T8922.92.0%17.0%25.8%6.5%
CIBCCM-T8944.04.3%7.7%15.1%21.6%
Empire Co. Ltd.EMP.A-T884.12.7%7.7%50.9%-41.7%
Telus Corp.T-T8725.23.9%11.3%139.3%11.5%
Atco Ltd.ACO.X-T865.12.2%14.8%238.1%25.6%
National Bank of CanadaNA-T8618.83.9%8.6%22.3%37.8%
Bank of Nova ScotiaBNS-T8691.93.8%6.4%14.1%35.9%

Source: Thomson Reuters Eikon