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Twelve Canadian dividend all-stars Add to ...

Peter Ashton is vice-president of client services at Recognia Inc.

What are we looking for?

With signs pointing to a sustained period of low interest rates in Canada and the United States, investors have been flocking to stable, dividend-paying stocks in search of yield. The S&P/TSX Dividend Aristocrats Index is up 1.7 per cent month-to-date and 9.1 per cent year-to-date.

Today, we look for outstanding Canadian dividend-paying stocks with the financial capacity to continue their dividend payouts in the future.

The screen

We will be using Recognia Strategy Builder to search for these dividend all-stars.

We begin by setting a minimum market capitalization threshold of $1-billion to focus on larger, more stable and established companies in the market. Next, we will look for companies with a dividend yield of at least 3 per cent. This narrows the field to less than one third of TSX-listed stocks. We will also specify a five-year average dividend growth rate of at least 10 per cent to focus on stocks with a track record of increasing their dividend payouts over time.

Finally, in order to select companies with the financial capacity to continue their dividend payments in the future, we will specify a dividend coverage ratio of at least 125 per cent. The dividend coverage ratio is obtained by taking the company’s earnings per share for the past 12 months and dividing by the dividends paid over the past year. A high dividend coverage ratio indicates a company has the earnings to continue paying out the dividend and perhaps even raise it in the future.

More about Recognia

Recognia is a global leader in quantitative and technical analysis. It is accessible by more than 20 million investors and traders worldwide through leading retail online brokers. Recognia covers 85 exchanges worldwide, and analyzes 65,000 instruments daily including stocks, indexes, ETFs, currencies and futures.

What did we find?

Agricultural products manufacturer Agrium Inc. ranks No. 1 on our screen. The company has a five-year average dividend growth rate of 112 per cent and a dividend coverage ratio of 283 per cent. Another agricultural chemical provider, Potash Corp. of Saskatchewan, also makes our screen at No. 4.

Rogers Communications Inc. is Canada’s largest wireless provider. It is the second-biggest company on our screen with a market cap of $22.2-billion, has a dividend yield of 4.3 per cent and a 186 per cent dividend coverage ratio.

Mullen Group Ltd. is an Alberta-based trucking and logistics company that specializes in transportation services for the oil field industry. The company has a 4.2-per-cent dividend yield and has a five-year average dividend growth rate of 10.3 per cent.

Historical performance

Recognia Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 13.2-per-cent annualized return compared with 7 per cent for the S&P/TSX composite index and 6 per cent for the S&P/TSX 60 index.

The investment ideas presented here are for information only. Investors should conduct further research before investing.

Canadian stocks with strong, sustainable dividend yields

Follow on Twitter: @Recognia_Peter

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