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What are we looking for?

Canadian companies paying back through shareholder yield.

The screen

Today’s strategy reminds us that Canadian corporations can provide value to shareholders by paying them back in a few different ways: 1) by paying a regular dividend; 2) by buying back shares, thereby increasing the price of the shares remaining on the market; and 3) by retiring debt, thereby freeing up cash flow to pay dividends instead of funding debt obligations.

To find companies in Canada showing a reasonable combination of all three of these characteristics, I ranked the stocks in our Canadian database (today consisting of 709 companies) on the following metrics:

  • Trailing dividend yield (calculated based on what has already been paid to shareholders in the past four quarters).
  • Change over four quarters in long-term debt and outstanding shares (calculated as the percentage difference between the latest reported long-term debt and number of outstanding shares against the same figure, respectively, four quarters ago. In the table, negative figures are preferred, implying that today’s outstanding debt or share count is lower than it was four quarters ago.)

To qualify, companies must have a market float greater than $800-million. Recall that market float reflects the dollar value of a company that is available to be traded publicly. The figure of $800-million is meant to include just the top one-third of companies by size in our database. Additionally, only companies with positive trailing return on equity were considered.

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 March, 2006, to the end of November, 2019. During this process, a maximum of 15 stocks were purchased and equally weighted with no more than three stocks a sector. Once a month, stocks were sold if their rank fell below the top 30 per cent of the universe, or if the company’s trailing return on equity turned negative. Over this period, the strategy produced an annualized total return of 10.3 per cent while the S&P/TSX Composite Index gained 5.6 per cent on a total return basis.

Today, only 11 stocks qualify for purchase and are listed in the table below. It is always recommended to speak to a financial adviser or investment professional before investing.

Select TSX dividend stocks

RankCompanySymbolMkt. Float ($ Mil.)Chg. in Debt over 4Q (%)Chg. in Outstanding Shares over 4Q (%)Trailing Div. Yld. (%)Trailing ROE (%)Recent Price ($)Ttl. Rtn. from Month End, 12M Ago (%)
1Great-West Lifeco Inc.GWO-T8,738.810.4-6.05.013.432.4721.1
2Artis REITAX-UN-T1,474.410.9-10.35.07.411.7532.5
3Dream Office REITD-UN-T1,442.2-12.4-6.33.36.530.6641.7
4Genworth MI CanadaMIC-T2,167.93.7-3.03.711.755.7148.3
5Sun Life Financial Inc.SLF-T34,534.37.6-2.83.513.358.7734.4
6H&R REITHR-UN-T6,153.00.90.16.47.121.5110.3
7Transcontinental Inc.TCL-A-T1,052.011.5-0.66.014.414.34-21.2
8Superior Plus Corp.SPB-T2,184.211.90.05.89.712.4935.8
9Cdn. Pacific RailwayCP-T42,522.610.4-3.61.032.5309.2528.6
10Domtar Corp.UFS-T2,432.2-6.50.04.811.249.527.1
11Corus EntertainmentCJR-B-T1,157.6-11.80.04.311.35.5520.4

Source: Morningstar CPMS

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

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 17/05/24 4:00pm EDT.

SymbolName% changeLast
GWO-T
Great-West Lifeco Inc
+0.35%42.77
AX-UN-T
Artis Real Estate Investment Trust Units
-0.46%6.48
D-UN-T
Dream Office REIT
-0.33%18
SLF-T
Sun Life Financial Inc
+0.36%70.37
HR-UN-T
H&R Real Estate Inv Trust
-1.95%9.54
TCL-A-T
Transcontinental Inc Cl A Sv
+1.18%13.7
SPB-T
Superior Plus Corp
-0.32%9.39
CP-T
Canadian Pacific Kansas City Ltd
+0.34%111.67
CJR-B-T
Corus Entertainment Inc Cl B NV
0%0.495

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