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What are we looking for?

Large-cap Canadian stocks with strong dividend yields.

One of the biggest financial stories of 2016 has been the rapid decline in bond yields around the world. Japan, Germany and Switzerland have led the world with bond yields declining to less than zero for maturities out to 10 years or more. Even in the United States, the 10-year Treasury bond yield declined almost a third from 2.37 per cent in January to 1.60 per cent in July. With bond yields now in their third consecutive year of declines, where should conservative investors look for yield?

The screen

We will be using Recognia Strategy Builder to search for Canadian stocks offering above-average dividend yields and manageable debt levels.

We begin by setting a minimum market-capitalization threshold of $7.5-billion. Larger companies offer a higher degree of stability for conservative investors.

Next, we will look for stocks with above-average yields. We will filter for stocks with an indicated annual dividend yield of at least 4.25 per cent. In addition, we will remove from consideration any company that has a negative dividend growth rate over the past year.

Finally, high debt levels are a drag on future earnings and therefore are a threat to future dividend payouts. We will screen for companies with debt-to-equity levels of 1.5 or less.

More about Recognia

Recognia is a global leader in automated quantitative analysis and engagement solutions for retail online brokers and institutions. Recognia's product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indexes, forex, options and commodities.

What did we find?

Calgary-based Pembina Pipeline Corp. is a mid-stream oil and gas service provider operating mainly in Western Canada. The company has a 4.9-per-cent dividend yield and a very low debt level with a debt-to-equity ratio of 0.42. So far in 2016 the stock has had an impressive run, up 28.8 per cent year-to-date on the back of strengthening energy prices.

Power Financial Corp. is a financial holding company that owns portions of Great-West Lifeco Inc., Investors Group Inc., London Life Insurance Co. and other companies. With a 5.1-per-cent dividend yield and 6.4-per-cent dividend growth rate, this is a strong candidate for income-oriented investors.

Shaw Communications Inc. is a Canadian telecom company providing TV, Internet, mobile and telephone services. Shaw stock currently yields 4.6 per cent and has a one-year dividend growth rate of 7.8 per cent and a five-year growth rate of 28.8 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 22.8-per-cent five-year cumulative return and a 4.2-per-cent annualized return. Compare this with an annualized return of 1.9-per-cent for the S&P/TSX 60 index and 1.4-per-cent for the S&P/TSX composite.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Recognia Inc. in respect of the investment in financial instruments. Investors should conduct further research before investing.

Peter Ashton is vice-president of retail and self-directed investing at Recognia Inc.

Canadian dividend darlings

RankCompanyTickerMarket Cap ($B)Dividend Yield %Dividend Growth Rate Current to Prior Year %Debt to Equity Ratio
1CI Financial Corp.CIX-T7.55.0%9.2%0.33
2Pembina Pipeline Corp.PPL-T15.14.9%4.7%0.42
3Power Financial Corp.PWF-T21.65.1%6.4%0.74
4Canadian Imperial Bank of CommerceCM-T38.94.9%9.1%1.35
5Shaw Communications Inc.SJR.B-T12.34.6%7.8%1.06
6Power Corporation Of CanadaPOW-T13.04.8%5.5%1.13
7BCE Inc.BCE-T54.24.3%5.3%1.23
8RioCan Real Estate Investment TrustREI.UN-T9.54.8%0.0%0.79

Source: Recognia