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What are we looking for?

Volatile is the best way to describe 2022 for financial markets thus far. Interest-rate hikes, inflation, supply chain disruptions and the Russia-Ukraine war have made investors and markets nervous, taking a toll on risk assets. As a result, my team member Allan Meyer and I thought we would take a conservative approach and analyze income-producing, low-volatility stocks using our investment philosophy focused on safety and value to see how they stack up in these stormy times.

The screen

We started with Canadian-listed equities with a market capitalization of $1-billion or more. This is a safety factor – larger companies tend to be more stable and diverse. They also tend to offer better trading liquidity. We used beta to identify our low-volatility stocks; it measures how much the stock moves relative to the market. We limited the names to those with a beta of less than one, which implies they are less volatile than the market, and we sorted on this metric in ascending order.

Dividend yield is the projected annualized dividend divided by the recent share price. Allan and I chose securities that yield 2.5 per cent or more. Payout ratio is the dividend divided by earnings. A lower number is better, and hints at the possibility for future dividend hikes. We have capped payout at 100 per cent – anything above is warning sign. Debt-to-equity is our final safety measure. It is the debt outstanding divided by shareholders’ equity. A smaller ratio indicates a company has lower levels of debt or leverage.

All companies on the list are projected to generate earnings. Price-to-earnings is a valuation metric – the lower the number, the better the value. Earnings momentum is the most recent 12 months’ earnings compared with the same figure from one quarter ago. A positive number means earnings are increasing and vice versa for a negative number.

Lastly, we have provided the 52-week total return to track recent performance.

What we found

22 low-volatility dividend stocks

CompanyTickerMkt. Cap. ($ Bil.)BetaDiv Yld (%)Payout Ratio (%)D/E (%)P/EEarns. Mom. (%)52W Ttl. Rtn. (%)Recent Price ($)
Fortis Inc.FTS-T30.60.13.378.4134.422.6-2.322.364.59
Hydro One Ltd.H-T21.20.23.065.2134.721.5-0.622.835.43
Cogeco Inc.CGO-T1.10.23.225.7408.37.9-2.0-18.477.28
Quebecor Inc.QBR-B-T7.70.33.746.2546.311.70.0-3.732.09
Rogers Comm.RCI-B-T37.10.42.764.8216.917.9-0.825.573.52
Maple Leaf FoodsMFI-T3.70.42.786.470.118.2-17.511.129.97
Cogeco Comm.CCA-T5.00.52.630.0135.711.70.6-7.6106.79
North West Co.NWC-T1.90.53.746.181.815.4-2.815.139.92
Shaw Comm.SJR-B-T19.70.53.063.499.224.94.121.339.44
Leon's FurnitureLNF-T1.40.63.023.957.78.21.25.221.56
TMX Group Ltd.X-T7.40.62.550.029.618.25.0-0.6131.65
Evertz TechnologiesET-T1.20.74.787.69.517.122.79.215.25
Agnico Eagle MinesAEM-T37.20.72.563.028.426.9-7.99.681.85
Royal Bank of CdaRY-T193.40.83.539.4319.011.81.620.8136.66
Atco Ltd.ACO-X-T5.10.84.183.2246.913.7-1.811.244.89
Great-West LifecoGWO-T34.50.85.353.632.19.72.613.337.10
Bank of Nova ScotiaBNS-T105.30.84.646.1256.310.23.417.087.58
TD BankTD-T175.60.83.740.8317.811.33.221.196.73
Premium BrandsPBH-T4.70.92.783.2110.218.78.0-9.0105.63
B2Gold Corp.BTO-T6.20.93.540.12.613.1-7.22.65.85
Sun Life FinancialSLF-T40.40.93.832.951.910.31.011.369.10
CIBCCM-T66.20.94.441.4229.69.53.523.4146.74

Source: Refinitiv Eikon & Wickham Investment Counsel Inc.

The list is dominated by consumer staples, utilities and financials. Many names look appealing and have posted solid returns over the past year. Over all, Sunlife Financial Corp. and Leon’s Furniture Ltd. score well for safety and value. Leon’s has the lowest payout ratio; maybe there’s a divvy bump in the future?

Royal Bank of Canada, Bank of Nova Scotia, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce also look good; as banks, they carry higher debt loads, but this is normal as the nature of their business allows them to facilitate this.

Cogeco Inc. boasts the best value, but also has a lot of debt, while gold miner B2Gold Corp. has the least. Fortis Inc. is the least volatile as per its beta.

Investors should contact an investment professional or conduct further research before buying any of the securities listed here.

Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.

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