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What are we looking for?

High-yielding Canadian-listed stocks.

The screen

Income-hungry investors are certainly not oblivious to the fact that bonds are not the most rewarding place to be at present. Despite continuing to offer safety in times of volatility, a 10-year Canadian benchmark bond is currently yielding roughly 1.7 per cent (although that’s higher than what it was in August, 2020, when yields dropped to a measly 0.5 per cent). Still, those seeking a steady income stream are likely looking for other sources of cash flow.

With this in mind, today I use Morningstar CPMS to look for companies traded in Canada exhibiting higher-than-usual dividend yields for investors who can withstand a greater degree of risk in exchange for higher yields. To begin the search, I ranked the 714 companies in our Canadian database on the following factors:

  • Expected dividend yield (using the most recently announced dividend that hasn’t been paid yet);
  • Five-year dividend growth rate (on average, how much dividends have grown each year over the past five);
  • Five-year cash flow growth rate (a measure pointing to a company’s ability to generate enough cash flow to pay its dividends).

Additionally, I screened for companies that have an expected dividend payout ratio against estimated earnings of less than 80 per cent, or a trailing dividend payout ratio against cash flows of less than 60 per cent. These screens ensure that the company is not paying out an inordinate amount of their earnings or cash flows in the form of dividends, which is not sustainable over time.

I also screened for companies that have a positive trailing return on equity, and a market capitalization greater than $170-million (a figure meant to exclude the bottom one-third of stocks in the database by size).

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors, and institutional investors. Morningstar Direct is the firm’s multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

What we found

High-yielding TSX-listed stocks

RankCompanyTickerSectorMkt. Cap. ($ Mil.)Div. Yld. (%)5Y Div. Grth. Rate (%)5Y CF Grth. Rate (%)Exp. Div. Payout Ratio, Earns. (%)Trail. Div. Payout Ratio, CF (%)Trail. ROE (%)12M Ttl. Rtn. (%)Recent Close ($)
1Fiera Capital Corp.FSZ-TFinancial Svcs.901.78.16.811.358.949.930.5-0.110.66
2Stingray GroupRAY-A-TComm. Svcs.409.23.916.840.129.721.421.817.17.65
3Capital Power Corp.CPX-TUtilities4,402.75.77.114.199.131.78.611.938.41
4Algoma CentralALC-TIndustrials654.03.918.818.342.216.411.027.717.30
5Plaza Retail REITPLZ-UN-TReal Estate469.26.11.54.777.866.68.734.74.61
6Great-West LifecoGWO-TFinancial Svcs.35,646.95.15.613.252.315.614.430.338.31
7Corby Spirit & WineCSW-A-TCons. Defensive478.85.70.96.276.864.718.03.316.82
8BCE Inc.BCE-TComm. Svcs.59,644.55.35.13.6103.641.116.525.465.63
9Parkland Corp.PKI-TEnergy5,447.33.51.844.641.616.516.9-16.935.73
10Cdn. Natural Res.CNQ-TEnergy71,444.73.915.57.136.919.914.885.560.71
11CT REITCRT-UN-TReal Estate1,786.25.03.93.473.049.37.513.416.85
12North West Co. Inc.NWC-TCons. Defensive1,665.64.32.820.656.928.228.89.434.67
13Power Corp. of CdaPOW-TFinancial Svcs.26,329.34.77.12.245.611.014.647.842.35
14Telus Corp.T-TComm. Svcs.40,312.84.46.72.7103.936.910.416.029.62
15Hydro One Ltd.H-TUtilities18,993.43.44.121.365.631.39.113.031.75

Source: Morningstar CPMS; data as of Jan. 11

I used Morningstar CPMS to back-test the strategy from April, 1995, to December, 2021, assuming an equally weighted 15 stock portfolio with no more than three stocks for each economic sector. Once a month, stocks were sold if they fell below the top 25 per cent of the index based on the above metrics, or if the dividend payout ratio exceeded both of the aforementioned limits. When sold, stocks were replaced with the next qualifying stock not already held in the portfolio, respecting the stated sector limits.

On this basis, the strategy produced an annualized total return of 12.4 per cent, while the S&P/TSX Composite Total Return Index advanced 8.8 per cent. The stocks that meet requirements to be purchased into the strategy today are listed in the accompanying table.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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