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What are we looking for?

The 10-year Government of Canada treasury yield spiked to 1.58 per cent last week – a one-year high, but still paltry compared with treasury yields that were topping 9 per cent in the early 1990s. With interest rates on Canadian savings accounts so low and limited discretionary spending options given the pandemic, retirees and income seekers could be looking increasingly toward dividend-paying companies as a substitute to park their cash. In light of this, we decided to screen for Canadian dividend payers that could serve as a stable alternative to government bonds for income investors.

The screen

To begin our analysis, we used FactSet’s Universal Screening tool to pull all publicly traded securities on the Toronto Stock Exchange.

We narrowed down our universe to those that have a dividend yield of 1.6 per cent or greater, which tops the current 10-year treasury yield. Additionally, we only included companies that have grown their dividend per share consecutively from 2016 to 2020 (2019, 2020 dividends shown). We then screened for companies that sell-side analysts expect to raise their dividends consistently for at least the next two years according to FactSet Estimates, which gathers mean consensus estimates among sell-side brokers.

Next, we only included companies that have a dividend payout ratio of less than 50 per cent as of 2020. While a 50-per-cent payout ratio is conservative, it minimizes the risk of a dividend cut and thus maximizes stability for conservative income seekers. The company can fully cover and raise its dividend using its own earnings, without taking on additional risks such as raising debt.

Last, we only included companies with a five-year beta of less than one. A beta of less than one indicates that the company’s stock price is less volatile than the overall market, which is important for those seeking stability.

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FactSet is a leading global financial data and technology company. FactSet’s superior suite of content, analytics and workflow solutions covers the entire portfolio life cycle and offers actionable insights for asset managers and investment professionals around the world.

What we found

Fourteen companies from a range of industries surfaced, which we ranked by their five-year annualized dividend growth rates. The finance sector was represented by six names, five of which are real estate investment trusts. There were both residential property managers, affected negatively by falling rents, such as Canadian Apartment Properties REIT, and industrial property managers, adversely affected by falling industrial demand including Summit Industrial Income REIT. This may explain why REITs represented the four lowest dividend growth rates on the list.

Quebecor Inc. topped our list with a 65.2-per-cent annualized dividend growth rate. The rapid growth is forecast to continue: The 80 cent dividend paid out in 2020 is expected to rise to $1.068 in 2021, according to FactSet estimates. The telecom’s success may be driven by its internet and wireless customer net additions outpacing losses from their legacy cable and telephone segments.

Leon’s Furniture Ltd., a home furniture and appliance retailer, was the only consumer cyclicals stock to pass our screen with a 3-per-cent yield and annualized dividend growth rate of 7.7 per cent. Leon’s may have adapted well to the pandemic as its e-commerce business demonstrated considerable strength by growing more than 200 per cent in the fourth quarter of 2020.

The information in this article is not investment advice. FactSet assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.

Select Canadian dividend growth stocks 

CompanyTickerMkt. Cap. ($ Mil.)5Y Beta5Y Ann. Div. Grth. (%)Div. Payout Ratio (%)2022 Estim. DPS ($)2021 Estim. DPS ($)2020 DPS ($)2019 DPS ($)Div. Yld. (%)1Y Ttl. Rtn. (%)Recent Close ($)
Quebecor Inc.QBR-B-T8,539.30.365.233.11.1721.0680.8000.3933.215.434.20
Metro Inc.MRU-T13,751.3-
Cdn. National RailwayCNR-T103,242.10.613.045.92.5302.4432.3002.1501.738.3145.35
Algonquin Power & UtilitiesAQN-T11,961.60.210.744.10.8770.8360.8180.7284.015.119.98
Cogeco CommunicationsCCA-T5,745.10.510.630.02.8042.5522.3202.1002.118.0119.91
Intact Financial Corp.IFC-T26,810.70.79.446.13.8443.4303.3203.0402.220.1152.28
Leon's Furniture Ltd.LNF-T1,665.50.57.728.40.7950.7700.5800.5603.055.921.20
Loblaw Cos. Ltd.L-T22,981.4-
Granite REITGRT-UN-T4,715.40.74.838.33.0483.0002.9122.8053.933.476.44
George Weston Ltd.WN-T15,321.20.34.635.52.2802.2002.1252.0902.26.9100.55
Canadian Apt. Prop. REITCAR-UN-T9,449.21.02.725.51.5121.4521.3801.3722.55.354.91
Allied Properties REITAP-UN-T5,
Killam Apartment REITKMP-UN-T1,951.70.82.448.40.7130.6940.6770.6573.6-4.018.89
Summit Ind. Incm. REITSMU-UN-T2,375.50.81.437.90.5450.5430.5400.5323.842.614.15

Source: FactSet

DPS = dividend per share 

Arjun Deiva, CFA, is a vice-president at FactSet Canada’s consulting division.

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