Craig McGee is a senior consultant at Morningstar Canada.
What we're looking for
Steady and stable Canadian dividend payers with decent prospects of growing their payouts.
I used Morningstar CPMS to find the top 20 stocks in the Canadian database with the best combination of the following metrics:
- market capitalization greater than $500-million;
- expected dividend yield of at least 1 per cent;
- expected payout ratio, using consensus earnings estimates, of less than 80 per cent;
- low price volatility, with five-year beta in the lowest half of the CPMS database;
- earnings stability – the stocks had to be in the top half of the CPMS database;
- consensus EPS estimate revisions over the past quarter.
Selected companies must have maintained or grown their dividends in the past year, and higher track records of dividend growth were favoured.
To test the screen, I used CPMS to back-test the strategy's rules to select an equally weighted 20-stock portfolio starting Dec. 31, 1991. Stocks were re-ranked monthly, and positions would be replaced if they fell outside of the best 30 per cent of all stocks or if dividends were cut.
More about Morningstar
Morningstar Inc. provides independent investment research in North America, Europe, Australia and Asia. Its 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
As of Jan. 31, 2014, the strategy generated an annualized total return of 14.9 per cent, while the S&P/TSX composite posted a total return of 8.8 per cent over the same period.
In 2013, the strategy came in at 20 per cent versus 13 per cent for the index.
As always, do your own research before trading any of the stocks listed here.
Canadian dividend stocks expected to boost their payouts
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