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What are we looking for?

High-yielding Canadian dividend stocks.

The screen

As the Bank of Canada continues to hold rates steady, income-focused investors who continue to seek yields in this low interest-rate environment may glean some ideas from this week’s strategy. Using Morningstar CPMS, I’ve ranked our Canadian database (consisting of about 700 stocks) on the following factors:

  • Trailing dividend yield (based on what the company paid in the trailing four quarters);
  • Expected dividend yield (based on what the company has announced it will pay, but has not yet paid);
  • 10-year standard deviation of earnings (a stability/safety factor measuring how volatile a company’s earnings have been over the past 10 years, lower figures preferred);
  • 180-day standard deviation of total returns (another stability factor, this time measuring the movement of the stock inclusive of dividends, lower figures preferred);

Because we are ranking primarily on dividend yield, we also need to ensure that dividends are reasonably sustainable. To find this, we only consider companies with a dividend-payout ratio on earnings of less than 80 per cent or a dividend payout ratio on cash flow of less than 60 per cent. Only companies with a market capitalization of greater than $115-million were included this analysis (this figure is meant to exclude the bottom one-third of stocks in Canada by market capitalization).

More about Morningstar

Morningstar Research Inc. provides independent investment research in North America, Europe, Australia and Asia. Its research tool, Morningstar CPMS, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers. CPMS data cover more than 95 per cent of the investable North American stock market. With more than 120 equity and credit analysts, Morningstar has one of the largest independent institutional equity research teams in the world.

What we found

I used Morningstar CPMS to back-test this strategy from January, 1999, to April, 2019. During this process, a maximum of 15 stocks were purchased and equally weighted with no more than four per economic sector. Once a month, stocks were sold if their rank fell below the top 35 per cent of the ranked universe or if their dividend payout ratios exceeded both 100 per cent on earnings and 80 per cent on cash flows.

When sold, the positions were replaced with the highest-ranked stock not already owned in the portfolio. Over this period, the strategy produced an annualized total return of 10.7 per cent while the S&P/TSX Composite Total Return Index gained 7.2 per cent. The above analysis included a 1-per-cent liquidity cost (assuming that stocks were bought at 1 per cent higher and sold for 1 per cent lower at the time of transaction).

The stocks that qualify for purchase today are listed in the accompanying table. It is always recommended to speak to a financial adviser or investment professional before investing.

High-yielding Canadian dividend stocks

RankCompanyTickerMkt. Cap. ($Mil)Trail. Div. Yield (%)Expected Div. Yld. (%)10Y EPS Stand. Dev. 180D Stand. Dev./Ttl. Rtn.Payout Ratio/Earns. (%)Payout Ratio/Trail. CF (%)Recent Price ($)Price Chg from Month-end, 12M ago (%)
1Firm Capital MortgageFC-T 382.2
2BCE Inc.BCE-T 55,139.6
3Bank of Nova ScotiaBNS-T 85,760.3
4Telus Corp.T-T 30,335.9
5Morguard REITMRT-UN-T 730.2
6CIBCCM-T 46,048.4
7National Bank of CanadaNA-T 20,890.9
8Emera Inc.EMA-T 12,210.0
9Canadian Utilities Ltd.CU-T 10,363.2
10Keg Royalties Income FundKEG-UN-T 197.6 6.56.514.316.488.752.317.4-3.1
11Enbridge Inc.ENB-T 103,608.5
12Fortis Inc.FTS-T 22,054.3
13Northview Apartment REITNVU-UN-T 1,518.4
14TC Energy Corp.TRP-T 61,563.5 4.24.510.715.673.937.466.6622.8
15Granite REITGRT-UN-T 3,302.7 4.44.519.012.277.779.762.120.6

Morningstar CPMS

Ian Tam, CFA, is a relationship manager for CPMS at Morningstar Research Inc.