What we're looking for
The credit markets have a lot to say about corporate debt – which can provide useful signals about our confidence in investing in the stocks of those corporations, too. Today, we take a closer look at Canadian companies with healthy credit profiles, with the help of Jamie Hynes, sales director with S&P Capital IQ.
How we did it
Mr. Hynes devised a stock screen combining Standard and Poor's Entity Credit Ratings with S&P Capital IQ financial data. He screened the Capital IQ database for TSX-listed stocks with "investment grade" S&P credit ratings. Under S&P's credit rating system, these are the grades considered investment quality:
AAA – Extremely strong capacity to meet financial commitments (this is the highest possible rating);
AA – Very strong capacity to meet financial commitments;
A – Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances;
BBB – Adequate capacity to meet financial commitments, but more subject to adverse economic conditions;
BBB-[minus] – Considered the lowest investment grade by market participants.
More about S&P Capital IQ
S&P Capital IQ offers a comprehensive set of tools for fundamental analysis of global securities as well as idea generation and workflow management. Its Web- and Excel-based platform provides access to both real-time and historical information on companies, markets, transactions and people around the world.
What we found
Some 80 TSX-listed companies have an S&P 500 investment grade credit rating; Mr. Hynes has provided us with the 20 highest-rated companies on the accompanying chart. He noted that all 20 firms pay a dividend; only two of these companies have failed to raise their dividends over the past five years.
Seventeen of the 20 have generated positive returns (both on a price basis and a total-return basis) so far this year. The average year-to-date total return is 12.7 per cent – handily beating the 5.1-per-cent total return for the S&P/TSX composite index.
As always, you should do your own research before buying any of the stocks listed here.
Editor's note: Atco Ltd.'s five-year average annual dividend growth rate is +8.7 per cent. An incorrect figure appeared in an earlier version of the table.