Despite the rise in stock prices over the past year, dividend-yielding stocks still look attractive when compared with bond-term yields. Leigh Pullen, president and chief investment officer at QV Investors in Calgary, noted that the average yield on stocks in the S&P/TSX composite index is 71.4 per cent of the yield on the long bond.
While that’s a lot lower than the 120 per cent comparison at the depths of the stock market rout last March, it is still historically high. Indeed, the average over the past 20 years is less than 40 per cent, making dividend stocks look very attractive next to bond yields.
Here’s another way to look at the numbers, also courtesy of Mr. Pullen. Government of Canada five-year and 10-year bonds yield about 2.5 per cent and 3.7 per cent, respectively. However, about three-quarters of the S&P/TSX composite index (by market capitalization) will get you a yield that beats the yield on the five-year bond. And about 21 per cent of the index (also by market cap) will beat the yield on the 10-year bond.
“This is a temptation, and means we must discriminate in the selection of our companies,” Mr. Pullen said in a note. To that end, he likes companies that have been able to increase their dividends by a rate of 15 to 16 per cent over the past five years.
He highlighted seven stocks that fit the bill in his Canadian equity portfolios: Husky Energy Inc., which has grown its dividend by 107 per cent over the past five years; EnCana Corp., whose dividend has risen 82 per cent; Canadian National Railway Co., up 23 per cent; Toromont Industries Ltd., up 20 per cent; Saputo Inc., up 17 per cent; National Bank of Canada, up 24 per cent; and Telus Corp., up 29 per cent.
