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What are we looking for?

My associate Allan Meyer and I thought we would take a closer look at Canadian growth stocks using our investment philosophy focused on safety and value.

The screen

We screened for growth by looking at Canadian-listed equities with positive annualized revenue growth of 15 per cent or better over the past three years. The list is sorted from highest to lowest on this measure. We narrowed it down further by limiting the list to companies with a market capitalization of $1-billion or more. We view market capitalization as a safety factor. We like large, stable businesses that can grow as that should increase the value of the company and its resulting share price in the long term.

We also look at leverage or debt-to-equity as a safety factor. A lower number is preferred and zero is best.

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Mr. Meyer and I love dividends and as we like to tell clients, “we like to get paid while we wait for appreciation.” Dividends generally reflect safer and more consistent earnings profiles, but often aren’t quite as apparent in growth companies, which tend to spend more reinvesting in the business than returning cash to shareholders. We like the best of both worlds – companies that can grow and pay dividends. All companies on our list are projected to pay a dividend over the next year.

As value investors, Mr. Meyer and I like to buy investments when they are “cheap.” Price-to-earnings is the share price divided by the projected earnings per share. It is a valuation metric; the lower the number, the better the value.

Earnings momentum is the change in annualized earnings (an estimate of total income over four quarters) over the past quarter. The list is limited to companies with positive earnings momentum. You would expect revenue growth also to lead to earnings growth and capital appreciation over time.

Lastly, we included the 52-week total return to track performance over the past year.

What did we find?

Enbridge Income Fund Holdings Inc. has the highest yield, no debt and scores well on most of the other safety and value metrics. Norbord Inc. is the deepest value play and scores well across the board, while TransAlta Renewables Inc., Tricon Capital Group Inc., Hudbay Minerals Inc. and West Fraser Timber Co. Ltd. are also attractive on most measures.

Growth stocks that also pay a dividend

CompanyTickerRecent Price ($)Market Cap ($Bil)Ann. 3Y Rev Growth (%)Div. Yield (%)D/E (%) P/EEarns. Momentum52Wk Total Return (%)
Sleep Country Canada Holdings Inc.ZZZ-T34.751.376.71.940.418.37.11.5
Cara Operations Ltd.CARA-T27.801.771.91.566.615.813.06.1
Hydro One Ltd.H-T20.9512.661.54.2112.816.06.4-10.8
Winpak Ltd.WPK-T47.423.
Tourmaline Oil Corp.TOU-T23.
Enbridge Income Fund Holdings Inc.ENF-T27.564.843.
FirstService Corp.FSV-T88.703.139.90.8132.726.15.112.1
Emera Inc.EMA-T40.
Brookfield Asset Management Inc.BAM.A-T49.8449.425.81.5285.531.7190.94.4
Alamos Gold Inc.AGI-T6.902.725.50.40.325.3169.2-37.0
Restaurant Brands International Inc.QSR-T70.6933.325.23.3544.520.710.4-3.8
TransAlta Renewables Inc.RNW-T11.562.923.58.148.313.414.0-23.2
Algonquin Power & Utilities Corp.AQN-T12.295.323.54.9113.916.12.80.1
Tricon Capital Group Inc.TCN-T9.851.321.52.841.810.128.5-9.4
Hudbay Minerals Inc.HBM-T8.972.321.
Norbord Inc.OSB-T51.154.417.23.953.89.319.234.1
West Fraser Timber Co. Ltd.WFT-T90.946.916.70.723.310.318.357.7
CCL Industries Inc.CCL.B-T64.2211.416.30.8108.
Birchcliff Energy Ltd.BIR-T4.321.115.92.334.615.216.1-40.9
Whitecap Resources Inc.WCP-T8.453.515.33.638.521.093.5-13.2

Source: Thomson Reuters and Wickham Investment Counsel Inc.

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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