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number cruncher

What are we looking for?

Last year was a difficult one in financial markets and 2023 hasn’t faired much better so far. Silicon Valley Bank recently experienced a bank run and was taken over by regulators, heightening market volatility, especially in the financial sector. Combined with interest rate hikes, inflation and recession fears, some investors are nervous. We’ve had some recent client discussions in this regard. 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 cap of $1-billion or more. This is a safety factor. Larger companies tend to offer more stability and liquidity. We used beta to identify our low volatility stocks. It measures how much a stock moves relative to the market. We sorted on this metric in ascending order (and ascending volatility). We also limited the names to those with a beta of less than one as it implies they are less volatile than the general market. Dividend yield is the projected annualized dividend divided by the recent share price. Allan and I love to get paid while we wait for share price appreciation, and as a result we chose securities that yield 2 per cent or more. Payout ratio is the dividend divided by earnings. A lower number is better. It implies the dividend is safer. We have capped payout at 100. Anything above is a warning sign. Debt/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, as some like to call it. Price/earnings is a valuation metric. The lower the number the better the value. All companies on the list are projected to generate earnings or profit. Earnings momentum is the change in annual earnings over the past quarter. 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

25 low-volatility Canadian stocks

Fortis IncFTS-T26.
Emera IncEMA-T14.
Hydro One LtdH-T21.
Shaw Communications IncSJR-B-T19.
Jamieson Wellness IncJWEL-T1.20.42.349.9108.217.39.2-13.029.60
Rogers Communications IncRCI-B-T30.
Northland Power IncNPI-T8.40.43.628.9162.123.924.1-16.033.68
Saputo IncSAP-T14.
Cogeco Communications IncCCA-T2.
TMX Group LtdX-T7.30.62.634.127.817.8-0.40.1131.41
Canadian Utilities LtdCU-T9.
North West Company IncNWC-T1.70.64.458.162.013.0-3.7-2.434.65
Leon's Furniture LtdLNF-T1.20.63.524.160.07.1-2.6-9.918.22
Atco LtdACO-X-T4.70.74.756.9233.111.9-1.10.541.39
Royal Bank of CanadaRY-T181.
Great-West Lifeco IncGWO-T32.90.85.856.735.
Toronto-Dominion BankTD-T147.40.84.633.1316.98.81.8-10.980.90
Nutrien LtdNTR-T50.80.92.713.746.27.8-2.4-17.0101.68
Enghouse Systems LtdENGH-T2.00.92.344.03.926.9-4.7-14.135.64
Westshore Terminals Investment CorpWTE-T1.60.95.980.439.417.9-26.4-16.625.84
Premium Brands Holdings CorpPBH-T4.
Sun Life Financial IncSLF-T36.70.94.539.662.49.52.6-0.362.60
B2Gold CorpBTO-T5.20.94.851.51.911.22.8-16.34.80
Open Text CorpOTEX-T13.20.92.880.2104.79.01.4-8.148.95
Bank of Nova ScotiaBNS-T78.40.96.356.3273.58.4-3.5-24.365.76

Sun Life scores well almost across the board for safety and value. B2Gold has the lowest debt, looks good on most measures, and is the only gold name on the list. Northland Power boasts the best earnings momentum, while Cogeco is the least expensive (that is, best value). Both look interesting. Bank of Nova Scotia is the highest yielding but is among the worst performers. Utilities conquer the podium (top three) for least volatile as per beta, and the sector is the most prevalent on the list. Financials would be second.

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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