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What are we looking for?

Companies that have a high dividend yield where the dividend looks sustainable.

The screen

My colleagues Rob Belanger, Neil Wickham and I wanted to find Canadian companies with a market capitalization greater than $1-billion, a dividend yield of at least 4 per cent and a dividend payout ratio of less than 65 per cent. We sorted them from the largest to the smallest.

The price-to-cash flow ratio shows the multiple of the stock price to cash flow per share. A low price to cash flow ratio indicates better value than a higher ratio. EPS growth shows the percentage that the company's earnings per share increased in the latest year.

The screening criteria of $1-billion in market cap, a minimum dividend yield of 4 per cent and a maximum payout ratio (the percentage of cash flow per share that is paid out as dividends) of 65 per cent produced this list of 17 companies.

What did we find?

Whitecap Resources Inc. has the second-highest yield. The company is engaged in exploration, development and production of crude oil, natural gas and natural gas liquids in Western Canada. Even though the price of crude has plunged by more than 50 per cent and many Canadian oil producers have cut their dividend payouts, Whitecap's dividend looks safe with a payout ratio of only 52.7 per cent.

The best sector, in terms of higher dividends and lower payouts, is that of the financials. In our list Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada and IGM Financial all meet the criteria that we are looking for.

The Canadian financial sector, especially the banks, have been one of the favoured sectors by Canadian investors for many years. The one big bank that is not in the list, Toronto-Dominion Bank, didn't make it because the dividend yield is less than 4 per cent. For investors who choose to be paid now with higher dividends, BMO, CIBC, National, RBC and Scotiabank could be better choices.

There are several Canadian real estate investment trusts that have attractive yields but most of them have payout ratios greater than the 65-per-cent threshold used here. One notable exception is Choice Properties REIT, which has an attractive 6-per-cent yield and a payout ratio of only 51 per cent. Choice Properties owns more than 400 commercial properties formerly owned by Loblaw Cos. Ltd.

Please consult an investment professional or conduct further research before investing in any of the companies on our screen.

Michael Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.

Editor's note: An earlier version of this article included a table with incorrect data for many of the companies screened. This is the corrected version.

Selected Canadian dividend stocks