What are we looking for?
High-dividend Canadian stocks with reasonable payout ratios and strong economic performance.
The screen
We have screened our Canadian stocks universe (1,500 stocks) with the following criteria:
- A minimum market capitalization of $1-billion;
- An economic performance index, or EPI (return on capital divided by cost of capital), of at least 1.5. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
- A return on capital of 10 per cent or greater;
- A dividend yield of 3.5 per cent or greater;
- A payout ratio of 100 per cent or less. This represents the portion of earnings paid out as dividends to shareholders. The lower the number the better;
- A positive free-cash-flow-to-invested-capital ratio. This figure gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, pay and/or increase dividends, reduce debt, etc. A positive figure is good; 5 per cent and above is excellent.
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA (economic value-added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 7,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.
What did we find?
As you could have expected, many companies in the list come from the financials sector. The first of the Big Six banks to make the cut is Canadian Imperial Bank of Commerce with an EPI of 2.0 and a high FCF/capital ratio of 7.2 per cent. North West Co., a consumer staples stock that has been under pressure since early September, now offers a dividend yield of 5 per cent. The stock lost about 17 per cent of its value over the past three months and is now trading close to its 52-week low.
The highest dividend yield of the list (5.7 per cent) belongs to Granite, a REIT engaged in the ownership and management of industrial properties. The stock has been on a bullish trend since the start of 2016 and shows a year-to-date return of 12.5 per cent excluding dividends. An interesting side note – Granite's biggest tenant is Magna International Inc.
Investors are advised to do additional research prior to investing in any of the companies mentioned.
Jean-Didier Lapointe is a financial analyst for StockPointer at Inovestor Inc.