Craig McGee is a senior consultant at Morningstar Canada.
What are we looking for?
The country's biggest dividend payers.
I scanned the CPMS Canadian equity database for the 20 stocks with the highest value of expected total dividends to be paid in the next four quarters and the following additional criteria:
-expected year-over-year dividend growth must be positive;
-each sector was limited to no more than three stocks;
-income trusts are excluded due to the varying nature of the classification of their distributions.
Using CPMS, I backtested the strategy to apply the same rules-based approach since Dec. 31, 1985. The portfolio of 20 stocks was equally weighted and reselected each year. Intrayear, any delisted stock would be replaced with one that met the above criteria.
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers.
CPMS data cover more than 95 per cent of the investable North American stock market. With more than 110 equity and credit analysts, Morningstar has one of the largest independent institutional equity research teams in the world.
What we found
Over the past year, this strategy has actually lagged the market, generating a total return of 24.5 per cent versus 28.7 per cent for the S&P/TSX Composite Total Return Index.
For the full period covering almost 30 years, however, this fairly defensive approach would have posted an annualized return of 13.1 per cent, soundly outperforming the index, which came in at 8.7 per cent.
Investors are advised to do their research before investing in any of the stocks shown here.
A portfolio of top Canadian dividend-paying stocks
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