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What are we looking for?

With interest rates near historic lows and many market followers anticipating rates to decrease or hold firm, fixed income investors, including those holding guaranteed investment certificates, are struggling to generate positive real returns after taxes and inflation. As a result, my associate Allan Meyer and I thought we would analyze Canadian dividend growers using our investment philosophy focused on safety and value. Some of these names could provide long-term investors who are willing to accept some market volatility with increasing income and capital appreciation over time.

The screen

We started by limiting the list to companies with a market capitalization of $1-billion or more. We view market capitalization as a safety factor as larger companies tend to offer investors more stability and liquidity.

We screened for dividend growth by looking at Canadian-listed equities with a five-year compound annual dividend growth rate of 15 per cent or better. The list is sorted from highest to lowest on this metric.

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Then we looked at dividend yield, which can be viewed as a safety factor. It is the projected annualized dividend divided by the recent share price.

For our final safety factor we also looked at debt to equity. A lower number is preferred and a number of 100 or less implies a company has enough equity to pay off its debts.

Allan and I are value investors – we’re always hunting for a bargain. The price-to-earnings ratio 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 over the last quarter. A higher number is better. Positive earnings momentum over the long term should translate to share price appreciation and dividend growth, which fits nicely into our dividend growth theme.

Lastly, we included the 52-week total return as a performance-tracking measure.

What we found

Enbridge Inc., Canadian National Railway Co., Open Text Corp., Alimentation Couche-Tard Inc. and Metro Inc. look very attractive on most measures. TransAlta Renewables Inc. is the highest yielding, while Magna International Inc. is the least expensive. Enghouse Systems Ltd. is the only name with virtually no debt while Quebecor Inc. has the most. Restaurant Brands International Inc. boasts the best dividend growth but is also among the highest for debt and valuations.

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

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Select TSX dividend stocks

CompanyTickerMkt. Cap. ($ Bil.)5Y Div. Growth Rate (%)Div. Yld. (%)Debt/Equity (%)P/EEarns. Moment. (%)Recent Price ($)52W Ttl. Rtn. (%)
Restaurant Brands Int'l Inc.QSR-T44.249.62.8753.624.42.495.0827.2
NFI Group Inc.NFI-T1.840.45.983.69.1-17.028.75-42.0
TransAlta Renewables Inc.RNW-T3.632.07.039.616.0-15.613.4426.5
Quebecor Inc.QBR-B-T7.930.91.51,405.614.04.030.7520.8
Maple Leaf Foods Inc.MFI-T3.926.61.919.123.0-0.930.950.3
Alimentation Couche-Tard ATD-B-T46.325.60.677.918.32.881.9926.4
CCL Industries Inc.CCL-B-T9.624.81.393.218.00.054.04-7.2
Norbord Inc.OSB-T2.621.05.666.816.3-55.932.10-24.5
Canadian Tire Corp. Ltd.CTC-A-T9.320.82.8140.910.73.0147.58-1.8
Stella-Jones Inc.SJ-T2.719.91.440.115.13.439.31-9.6
Enghouse Systems Ltd.ENGH-T2.018.61.20.527.7-1.636.88-8.9
Canadian Natural ResourcesCNQ-T42.518.44.264.513.3-6.435.76-13.1
Metro Inc.MRU-T14.916.91.446.918.55.758.5246.3
West Fraser Timber Co. Ltd.WFT-T3.616.91.526.514.9-57.354.70-28.9
MTY Food Group Inc.MTY-T1.616.31.045.218.3-1.163.930.6
Enbridge Inc.ENB-T94.916.36.393.017.10.846.8818.4
Canadian Nat'l Railway Co.CNR-T85.716.21.871.217.73.9118.984.0
Magna International Inc.MG-T21.815.62.841.08.1-0.869.913.2
Lassonde Industries Inc.LAS-A-T1.215.51.348.216.4-3.7180.01-21.0
Cogeco Inc.CGO-T1.415.51.8548.719.129.697.5768.2
Open Text Corp.OTEX-T14.715.11.767.314.10.454.3312.0

Source: Eikon & Wickham Investment Counsel Inc.

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

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