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What are we looking for?

Canadian dividend-payers that are too cheap to ignore amidst market volatility.

The screen

A tightening of central bank stimulus, rising interest rates, supply chain issues and the Russia-Ukraine war have led to one of the worst starts to a calendar year for the stock market in history. According to FactSet, the average company traded on a Canadian exchange is down 17.9 per cent year-to-date.

To quote Warren Buffett, be “fearful when others are greedy, and greedy when others are fearful.” History has repeatedly shown that investors with a long-term outlook can capitalize on down markets by investing in high-quality companies that may be unfairly beaten down. A growing dividend is an indicator of quality, as it demonstrates the ability to continue excelling despite tough times.

To identify Canadian dividend growers, we used FactSet’s Universal Screening tool to pull all publicly traded companies listed on any Canadian exchange. We further narrowed down our list using the parameters below:

  • Market capitalization greater than $100-million;
  • Dividend yield greater than 4 per cent;
  • Annual dividend per share raised consecutively for the past five years (not shown);
  • Analyst projections of continued dividend growth over the next two years (not shown);

Last, we ranked the remaining companies using a multifactor ranking that considered three familiar ratios: price-to-earnings; price-to-free-cash-flow and price-to-book-value, as well as dividend yield.

For informational purposes we have included each stock’s year-to-date and one-year total return, as well as the five-year dividend growth rate.

More about FactSet

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What we found

Canadian dividend-payers that are too cheap to ignore

RankCompanyTickerFactSet SectorMkt. Cap. ($ Mil.)Div. Yld. (%)P/E *P/B *P/FCF *YTD Ttl. Rtn. (%)1Y. Ttl. Rtn. (%)5Y Ann. Div. Grth. (%)Recent Close ($)
1Capital PowerCPX-TUtilities5,165.54.917.42.08.414.217.67.044.45
2Enbridge Inc.ENB-TEnergy114,345.36.118.72.011.616.125.59.556.45
3TC Energy Corp.TRP-TEnergy68,485.65.216.42.315.519.918.99.069.67
4Algonquin PowerAQN-TUtilities11,866.84.918.41.418.9-2.3-4.28.917.66
5Canadian UtilitiesCU-TUtilities10,717.54.517.32.015.510.418.96.239.57
6Quebecor Inc.QBR-B-TTelecom6,771.44.210.74.89.71.1-13.166.928.57
7Emera Inc.EMA-TUtilities16,455.64.220.71.815.71.817.35.263.00
8BCE Inc.BCE-TTelecom63,737.15.320.73.021.07.825.05.169.97
9Telus Corp.T-TTelecom43,764.14.125.82.836.97.826.36.731.81

Source: FactSet

* Forward-looking multiples, calculated by taking the latest closing price and dividing by the next fiscal year's analyst projections

Despite having no limitations in our screen regarding stock price performance, the average year-to-date total return for the companies in our group is 8.5 per cent, which far exceeds the aforementioned average return of minus 17.9 per cent. Interestingly, seven of the nine companies passing our screen were classified as either utilities or telecommunications, according to FactSet. These are two of the only sectors that broadly managed to continue raising their dividends during the pandemic, as the services they provide are considered essential, such as phone plans and electricity.

Capital Power Corp., headquartered in Edmonton, topped our screen. The company, which has a dividend yield of 4.9 per cent, recently reported strong quarterly results, which substantially exceeded analyst expectations on both adjusted EBITDA and adjusted funds from operations (not shown), two core metrics relevant to the utilities industry. (EBITDA stands for earnings before interest, taxes, depreciation and amortization.) Analysts expect today’s high electricity prices to continue, which will benefit the company.

Enbridge Inc., an oil and gas pipeline company based in Calgary, ranked second on our screen with the highest dividend yield in the group, at 6.1 per cent. Enbridge reported its quarterly results on May 6, where it beat analyst expectations on cash flow and adjusted EBITDA, while also reaffirming guidance for the remainder of 2022. Enbridge generates considerable portions of its revenues by charging companies fees to utilize its pipeline infrastructure, hence tends to deliver consistent growth, regardless of fluctuations in energy prices.

Telecom provider Quebecor Inc. stood out with a five-year annualized dividend growth rate of 66.9 per cent – driven by a growing wireless and internet subscriber base, which outpaced the losses from cable and telephone. Its growth is expected to normalize going forward, rising 13.2 per cent in 2022 and 5 per cent in 2023.

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.

Full disclosure: The author personally owns shares in ENB, AQN, BCE and T.

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

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