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What are we looking for?

Dividend growers who have been around since 1985.

The screen

To mark Canada’s 154th birthday, I thought we could highlight some of this country’s long-standing dividend growers. To begin this search, I looked back to December, 1985, at the humble beginnings of the Morningstar CPMS Canadian database (then known simply as CPMS – Computerized Portfolio Management Services). When launched, the database contained 275 stocks, of which only 42 remain today (many have been merged or delisted). I then took these 42 stocks and sorted them on a few core dividend growth metrics inclusive of:

  • Five-year earnings per share deviation (a measure of earnings consistency, lower figures preferred);
  • Five-year dividend growth rate (on average how much dividends have grown each year in the past five);
  • Dividend yield;
  • Expected dividend growth rate (a comparison of what the company has announced in dividends for the upcoming year compared with trailing dividends actually paid).

To look for reasonably sustainable dividends, a screen was placed to ensure the dividend payout ratio on earnings was less than 80 per cent, or the payout on cash flow were less than 60 per cent.

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More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

What we found

An ode to Canada’s dividend growers

RankCompanyTickerMorningstar SectorMkt. Cap. ($ Mil.)5Y EPS Dev. (%)5Y Div. Grth. Rate (%)Div. Yld. (%)Expected Div. Grth. (%)Payout on CF (%)Payout on EPS (%)12M Ttl. Rtn. (%)Recent Close ($)
1Agnico Eagle MinesAEM-TBasic Materials18,269.338.929.52.327.318.744.0-9.975.17
2BCE Inc.BCE-TComm. Services55,281.04.15.15.73.840.6112.013.761.11
3Algoma Central ALC-TIndustrials621.418.415.34.123.614.642.786.516.44
4TC Energy Corp.TRP-TEnergy59,993.14.89.55.75.543.378.912.861.28
5CCL Industries Inc.CCL-B-TCons. Cyclical12,356.65.218.81.212.014.523.359.568.84
6Fortis Inc.FTS-TUtilities25,934.33.86.33.72.828.473.911.755.25
7Canadian Tire Corp.CTC-A-TCons. Cyclical11,881.79.920.42.42.511.228.570.0195.4
8Maple Leaf FoodsMFI-TCons. Defensive3,205.717.215.62.89.125.156.7-7.225.85
9George Weston Ltd.WN-TCons. Defensive17,813.23.95.51.92.36.029.518.5117.24
10Atco Ltd.ACO-X-TUtilities5,046.15.411.54.12.211.355.016.644.05
11Andrew Peller Ltd.ADW-A-TCons. Defensive417.06.68.62.612.919.532.810.09.55
12Cdn Utilities Ltd.CU-TUtilities9,372.05.28.05.10.829.687.310.334.58
13Leon's FurnitureLNF-TCons. Cyclical1,786.313.39.22.810.314.224.279.722.8

Source: Morningstar CPMS. Data as of June 29

I used Morningstar CPMS to back-test the strategy from September, 1997, to May, 2021, assuming a 15-stock portfolio that never holds more than three stocks per economic sector. Once a month, stocks were sold if they fell beyond the top 35 per cent of the universe based on the aforementioned metrics. When sold, stocks were replaced with next qualifying stock not already held in the portfolio, keeping in mind the aforementioned sector limits.

It is important to clarify that the back-test accounts for survivorship bias by only considering the information available at the time when replacing stocks. For example, in September, 1997, the strategy chose from a universe of 138 stocks. In September, 2007, the strategy chose from a universe of 61 stocks (those that survived the first 10 years). In September of 2017, the strategy chose from 45 stocks, and so on. In essence, I arbitrarily chose a date in the past (December, 1985) after which I no longer considered any new companies. This is admittedly is a closed-minded approach to investing, but is effective in surfacing longstanding Canadian companies. On this basis, the strategy produced an annualized total return of 11.7 per cent, while the S&P/TSX Composite Total Return Index produced 7.1 per cent. There are only 13 stocks that meet the requirements today and they are shown in the accompanying table.

This article does not constitute financial advice. It is always recommended to speak with a financial adviser or professional before investing.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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