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What are we looking for?

We are looking for low-volatility Canadian stocks that also offer a high-quality profile for long-term investors.

The screen

We screened our Canadian universe of stocks with the following criteria:

  • A market capitalization of $500-million or above;
  • A beta of one or less. A stock with a beta greater than one is considered more volatile than the market; less than one means less volatile;
  • A return on capital greater than 12 per cent;
  • A positive sales change over 12 months and 24 months;
  • A positive free-cash-flow-to-capital ratio. This ratio 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;
  • All companies need to pay a dividend;
  • All companies need to have raised their dividend every single year over the past four years.

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 stocks, U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.

What did we find?

Ranking our results by return on capital, Open Text Corp. and CCL Industries Inc. stand out with very similar profiles. They generate the two highest ROC ratios of the group, around 26 per cent, and are also among the top of the list when it comes to revenue growth. Interestingly, their stocks have been under pressure lately. From their current stock prices, a move back to their respective 52-week highs would represent a 24-per-cent return for Open Text and a 29-per-cent return for CCL Industries.

MTY Food Group Inc., the quick-service restaurant franchiser, has continued to grow through acquisitions in 2016 and 2017. Its revenue more than doubled in the past 24 months, and the company keeps generating high free cash flows, which allow the management to increase the dividend and fuel the company's aggressive growth plan. MTY's stock is down 8 per cent year-to-date, after a 64-per-cent run in 2016.

Investors are advised to do additional research prior to investing in any of the companies mentioned.

Jean-Didier Lapointe is a financial analyst at Inovestor Inc.

Select Canadian stocks for the long term

CompanyTickerMarket Cap. ($ Mil)BetaROCSales 12M Chg. Sales 24M Chg.FCF/CapitalDiv. Yield (%)1Yr Div. Growth2Yr Annualized Div. Growth3Yr Annualized Div.  Growth4Yr Annualized Div. Growth
Open Text Corp.OTEX-T10,3000.3526.7%26%40%6.2%1.71%15.6%22.4%23.8%70.7%
CCL Industries Inc.CCL.B-T9,7800.5726.2%30%62%7.7%0.83%22.9%26.2%32.2%27.3%
Richelieu Hardware Ltd.RCH-T1,7800.4917.0%9%26%12.8%0.74%6.5%6.7%6.9%7.2%
Toronto-Dominion BankTD-T122,2700.6715.4%9%18%1.1%3.63%8.5%8.3%8.6%9.8%
Canadian National Railway Co.CNR-T74,4300.7315.3%5%2%6.2%1.67%14.6%18.3%19.2%18.3%
MTY Food Group Inc.MTY-T9870.6414.9%83%103%9.4%1.00%7.0%11.5%14.1%16.5%
Saputo Inc.SAP-T16,4200.6814.7%3%8%6.6%1.51%11.1%7.4%9.3%9.3%
Quebecor Inc.QBR.A-T5,6700.0114.6%3%4%7.3%0.47%26.7%31.4%23.9%17.4%
Gildan Activewear Inc.GIL-T8,5600.5514.5%8%13%14.6%1.25%22.2%24.8%27.5%27.6%
Magna International Inc.MG-T21,8600.9714.0%8%21%6.9%2.35%12.5%19.8%22.9%23.4%
New Flyer Industries Inc.NFI-T3,2000.1913.6%21%71%9.2%2.55%43.6%32.5%21.0%14.3%
Brookfield Asset ManagementBAM.A-T46,8600.4812.3%33%76%1.0%1.48%7.7%16.5%14.9%17.1%
Premium Brands Holdings Corp.PBH-T2,9800.3912.2%26%53%1.8%1.69%10.3%10.3%8.6%7.6%

Source: StockPointer