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What are we looking for?

Dividend stocks with the capacity to maintain – and even grow – their payouts.

While lush yields are attractive at first glance, they can be trouble if they strain a company's ability to pay. The best dividend investments tend to be companies with growing earnings and strong streams of cash flow that can easily support their current payouts.

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How we did it

Craig McGee, senior consultant at Morningstar Canada, screened Canadian stocks based on the following criteria:

  • Market capitalizations of more than $500-million;
  • Expected yields of more than 3 per cent;
  • Payout ratios of less than 75 per cent (the payout ratio is a company’s expected dividends as a fraction of its expected cash flow);
  • Positive expected year-over-year growth in earnings per share (EPS);
  • Positive growth rates over the past five-years in EPS, cash flow and sales.

The 15 top stocks on these criteria are ranked in the table using a combination of the three five-year growth rates.

More about Morningstar

Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its investment research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market.

What we found

The 15 stocks in the table feature yields as high as 7 per cent. Remember, though, that an investor is ultimately rewarded through a combination of dividends and growth, so don't choose any stock based purely on its yield.

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As always, it's important to do your own research by reading annual reports and analysts' coverage. While a screen such as this can turn up interesting possibilities, it's important to satisfy yourself that there are not issues that lurk behind the numbers.

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