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What are we looking for?

Given the recent volatility in financial markets, my colleague Allan Meyer and I decided to analyze low-volatility stocks using our investment philosophy focused on safety and value.

The screen

We started with Canadian-listed stocks with a market capitalization of $1-billion or more. This is a safety factor; large companies tend to be more stable and diverse than small caps. They also tend to be more liquid – with greater trading volume.

We used beta to identify our low-volatility stocks. It measures how much the stock moves relative to a market benchmark (in this case the S&P/TSX Composite Index). We limited the list to companies that have a beta of fewer than 1, which implies they are less volatile than the market. The list is sorted on this metric from lowest, or least volatile, to highest.

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Dividend yield is a company’s projected annualized dividend payment divided by its recent share price. Mr. Meyer and I love to get paid while we wait for share price appreciation, so we chose securities that yield 2 per cent or more.

The dividend payout ratio is the dividend payment divided by earnings. A lower number is preferred and may foreshadow a future dividend hike. We’ve capped payout at 100 per cent; any ratio above that could signal the potential for a dividend cut.

Debt-to-equity is our final safety measure. It is the debt outstanding divided by shareholders’ equity. A smaller ratio indicates a company has lower levels of debt or leverage. As Mr. Meyer and I like to tell our clients, it’s difficult to go bankrupt without owing any debts.

Price-to-earnings earnings is a valuation metric, and the lower the number, the better the value. All companies on the list are projected to generate earnings or “make money.”

Earnings momentum is the change in annual earnings over the past quarter. A positive number implies earnings are increasing and may signal the ability for future dividend raises, while the opposite is true for a negative number.

Lastly, we’ve provided the 52-week total return to track recent performance.

What we found

Fairfax Financial Holdings Ltd., Leon’s Furniture Ltd. and Intact Financial Corporation score well across the board for safety and value. Fairfax also has the best earnings momentum.

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Transcontinental Inc. boasts the highest dividend yield and is the least expensive. Evertz Technologies Limited is the only company that carries almost no debt. In general, you can see the list is dominated by necessary goods and services, such as staples (food and grocery), utilities and telecom.

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

Canadian low-volatility stocks

CompanyTickerMarket Cap ($B CAD)Recent Price ($)BetaDividend yield (%)Dividend Payout (%)Debt/Equity (%)Price EarningsEarnings Momentum (%)52wk Total Rtn (%)
North West Company IncNWC-T1.121.950.26.077.8132.912.4-3.3-24.2
Hydro One LtdH-T14.123.670.44.173.2129.716.64.122.0
Fortis IncFTS-T22.147.280.54.048.1124.917.52.40.2
Leon's Furniture LtdLNF-T1.214.330.54.540.660.810.43.72.9
Evertz Technologies LtdET-T1.013.290.55.477.40.212.4-3.1-10.7
Loblaw Companies LtdL-T21.659.470.52.142.4150.912.90.5-6.8
Emera IncEMA-T11.647.830.65.185.7183.516.7-4.12.2
Rogers Communications IncRCIb-T26.451.870.63.949.6211.712.2-3.1-26.1
Intact Financial CorpIFC-T17.4121.790.72.759.932.314.62.513.7
Cogeco Communications IncCCA-T4.591.990.72.529.6154.812.13.511.1
BCE IncBCE-T45.950.770.76.692.8124.814.1-0.3-9.6
Algonquin Power & Utilities CorpAQN-T8.716.310.84.651.8101.517.010.813.8
Ritchie Bros. Auctioneers IncRBA-T5.045.790.82.354.173.921.513.03.1
Telus CorpT-T26.241.000.85.776.4176.114.1-0.7-10.1
Fairfax Financial Holdings LtdFFH-T12.7458.090.82.813.660.77.0145.1-24.3
Maple Leaf Foods IncMFI-T2.520.510.83.196.040.123.1-20.0-21.5
Northland Power IncNPI-T4.824.560.94.970.0684.614.431.1-0.1
Saputo IncSAP-T12.129.570.92.343.044.215.13.6-32.1
Canadian Utilities LtdCU-T8.029.300.95.952.1134.013.9-1.8-14.8
Premium Brands Holdings CorpPBH-T2.874.700.93.187.4131.618.63.58.1
Transcontinental IncTCLa-T1.213.170.96.844.082.05.7-1.2-19.5
Shaw Communications IncSJRb-T10.019.200.96.287.085.114.1-3.0-27.1

Source: Eikon and 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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