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What are we looking for?

Some investors believe the top-performing equities of 2020 could be the “dogs," or worst performers, of 2019. The belief is that they become oversold, and have the potential to bounce back the following year. With the calendar year and tax loss season approaching an end, my associate Allan Meyer and I thought we would take a closer look at this year’s dogs using our investment philosophy focused on safety and value in hopes of identifying opportunities for the new year.

The screen

We started with TSX-listed equities with a market capitalization of $1-billion or more. We view this as a safety factor; larger companies usually provide more stability and liquidity. To identify our dogs, we looked at companies with a 52-week total return of negative 20 per cent or worse. The list is sorted on this metric from worst to best. (Although this isn’t quite the 2019 return, we view it as a good proxy.)

Allan and I love dividends, and, as we like to tell clients, “We like to get paid while we wait for capital appreciation.” Dividends generally reflect safer and more stable earnings profiles. Our list is limited to dividend payers. Dividend yield is the annual dividend divided by the share price.

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Debt to equity is a safety measure; a lower number is better.

Allan and I are value investors – we’re always hunting for a deal. 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.

Our list is limited to companies that are projected to post a profit over the next 12 months. Earnings momentum is the change in annualized earnings over the past quarter. A positive number means earnings are growing, and vice versa for a negative number. Increases over the long term should translate into price appreciation and dividend bumps over time while the opposite is true for decreases.

What we found

Transcontinental Inc. and Enerflex Ltd. generally score well for safety and value. Relative to the other companies, Enerflex has the best earnings momentum while Transcontinental is tied (with Encana Corp.) for the least expensive valuation. Vermilion Energy Inc. boasts the highest dividend yield on our list, but is also one of the most expensive (although some may argue price-to-cash-flow or price-to-net-asset-value are better valuation metrics for energy producers). In general, energy names are among the highest yielding. Oil field services specialist Pason Systems Inc. is the only name on the list without debt; it also has a nice dividend yield.

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

TSX dividend stocks with 52-week total return of negative 20% or worse

CompanyTickerMkt. Cap. ($ Bil.)52W Ttl. Rtn. (%)Div. Yld. (%)Debt/Equity (%)P/EEarns. Momentum (%)Recent Price ($)
Encana Corp.ECA-T7.0-55.71.860.36.0-2.35.42
ARC Resources Ltd.ARX-T2.2-50.59.524.727.4-41.46.30
Husky Energy Inc.HSE-T9.7-47.85.231.711.4-23.09.62
SNC-Lavalin Group Inc.SNC-T4.3-47.50.3100.515.08.524.69
Vermilion Energy Inc.VET-T3.0-45.414.268.541.61.719.43
Whitecap ResourcesWCP-T1.7-39.98.438.916.4-35.04.06
Tourmaline Oil Corp.TOU-T3.5-39.83.719.616.6-7.812.93
Methanex Corp.MX-T3.8-39.43.896.516.6-52.549.74
Enerplus Corp.ERF-T1.8-35.11.534.87.2-3.98.27
Enerflex Ltd.EFX-T1.0-34.94.034.78.919.611.57
PrairieSky Royalty Ltd.PSK-T3.2-34.15.70.245.8-11.113.75
Cineplex Inc.CGX-T1.6-33.77.087.424.96.425.69
NFI Group Inc.NFI-T1.8-31.06.083.610.5-16.728.22
Transcontinental Inc.TCL-A-T1.3-27.05.889.46.00.415.30
Pason Systems Inc.PSI-T1.1-24.66.00.019.2-11.812.61
Hudbay Minerals Inc.HBM-T1.2-24.40.448.4108.3-130.54.61
MTY Food Group Inc.MTY-T1.4-23.51.245.215.90.754.92
Lassonde Industries Inc.LAS-A-T1.1-23.31.548.214.4-4.1162.00
Crescent Point EnergyCPG-T2.8-21.40.864.731.7-59.25.13
Maple Leaf Foods Inc.MFI-T2.9-21.42.519.129.8-23.423.21

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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