Commodity stocks project as dividend winners

What are we looking for?

Stocks that are most likely to raise dividends using Bloomberg's dividend projection formula.

More about today's screen

Bloomberg has a formula it uses to try to predict annualized dividend growth rates for the next three years.

We do this screen every few months. To repeat, the formula takes into account such factors as company guidance, industry analysis, historical trends and analyst estimates. It also factors in some esoteric measures, such as option market implied dividends and historical regression analysis of fundamentals compared with dividends.

Finally, Bloomberg calculates something called the Bloomberg Dividend Directional Thermometer (DDT) score. It's a reading from minus-100 to plus-100 using various fundamental, credit rating and company health data.

A negative score indicates a company might cut its dividend, while a positive score notes the potential for an increase. A score must be above +50 to be conclusive about a potential dividend hike.

A high DDT score doesn't always mean a big dividend increase is coming, however.

For instance, a company might have a high DDT score but indicate it is about to execute a large share buyback, which would lower its projected dividend increase rate. That's why Bloomberg takes into account more than just the DDT score when making its projections.

We'll sort stocks in the S&P/TSX composite by the highest projected dividend growth rate by Bloomberg. Dividend growth rates are annualized.

What did we find out?

Using Bloomberg's formula, the highest dividend growth stocks for the next few years will come mainly from commodity stocks. There are no large financial services companies or telecoms on this list. Unfortunately, yields are low for most of this group.

If you are looking for yields closer to 3 per cent, you have to look further down the list to Transcontinental Inc. for a yield of 2.8 per cent and a projected three-year annualized dividend growth of 16.4 per cent; Westshore Terminals with a yield of 4.8 per cent and projected growth of 15.9 per cent; and Laurentian Bank with a yield of 3.1 per cent and a projected growth of 15.1 per cent.