Skip to main content
The Globe and Mail
Support Quality Journalism.
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
per week
for first 24 weeks

Enjoy unlimited digital access
Cancel Anytime
Enjoy Unlimited Digital Access
Get full access to
Just $1.99per week for the first 24weeks
Just $1.99per week for the first 24weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(}function setPanelState(o){dom.root.classList[o?"add":"remove"](,dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); } //

What are we looking for?

A pooled portfolio of Canadian income and momentum stocks.

The screen

Investors typically look for stocks with similar attributes, such as a long history of paying dividends, a low valuation, or strong earnings reports, to name a few. While it’s good to know what you want, the one downside to screening for a lot of different metrics is that you can sometimes reduce your stock universe to a very small set of options.

One way to help identify stocks with the characteristics you’re looking for, but without drastically reducing the number of possible companies, is to look at these attributes separately. For example, if you’re looking for dividends but also want stocks with upward momentum potential, you can consider those as two separate styles, and create two portfolios to match each one.

Story continues below advertisement

My strategy today is constructed of two different portfolio “sleeves”: dividend growth and momentum. Each sleeve will focus on its respective style only, and then the final portfolio will be a 50/50 combination of the two. The stocks will be selected from the CPMS Canadian Universe, which as of today holds 700 names.

The dividend-focused sleeve ranks stocks based on:

  • Five-year dividend growth rate – an annualized number, higher values preferred;
  • Expected dividend growth rate – difference between the expected annual dividend rate and the actual dividends paid in the past four quarters, higher values preferred;
  • Quarterly earnings surprise – proprietary measure of the difference between expected and actual reported quarterly earnings, high values preferred.

The momentum-focused sleeve ranks stocks based on:

  • Quarterly earnings momentum – measured as the growth in the most recent trailing four quarters of earnings relative to the trailing four quarters of earnings lagged by one quarter, higher values preferred;
  • Quarterly earnings surprise (as with the dividend sleeve);
  • Price change from 12-month high – a momentum factor based on stock price, least-negative values are preferred.

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.

What we found

I used Morningstar CPMS to backtest this strategy from January, 2004, to May, 2020. During this process, a maximum of 10 stocks a sleeve were purchased, for a maximum of 20 stocks. Stocks were sold from the dividend sleeve if their five-year annualized dividend growth fell into the bottom half of peers, and from the momentum sleeve if their share price dropped more than 15 per cent below its 200-day moving average. When sold, the positions were replaced with the highest-ranked stock not already owned in that particular sleeve of the portfolio. Over this period, the strategy produced an annualized total return of 14.8 per cent while the S&P/TSX Composite Total Return Index returned 6.5 per cent over the same period.

One thing worth noting is that the strategy’s downside deviation (measures the volatility of negative returns) was 7.7 per cent relative to the benchmark’s downside deviation of 9.6 per cent. Stocks that qualify for purchase into the both sleeves of the strategy today are listed in the accompanying table. As always, investors are encouraged to conduct their own independent research before purchasing any of the investments shown here.

Dividend growth sleeve

RankCompanyTickerMkt. Cap. ($ Mil.)5Y Div. Growth (%)Expected Div. Growth (%)Qtly. Earns. Surprise (%)Div. Yld. (%)12M Price Chg. (%)Recent Close ($)
1Cdn Tire Corp. Ltd.CTC-A-T7,209.320.
2Guardian CapitalGCG-A-T582.920.16.711.43.0-17.321.00
3Maple Leaf FoodsMFI-T3,522.219.37.611.02.3-8.128.43
4Enghouse SystemsENGH-T4,161.116.522.741.90.7118.975.66
5Lassonde IndustriesLAS-A-T507.
6Agnico Eagle MinesAEM-T20,513.315.628.010.41.322.884.70
7Tecsys Inc.TCS-T364.624.
8goeasy Ltd.GSY-T780.739.730.40.03.3-3.954.49
9Alim. Couche-TardATD-B-T48,
10Quebecor Inc.QBR-B-T7,356.376.948.8-2.82.7-2.629.12

Momentum sleeve

RankCompanyTickerMkt. Cap. ($ Mil.)Qtly. Earns. Momentum (%)Qtly. Earns. Surprise (%)Price Chg. from 12M High (%)Div. Yld. (%)12M Price Chg. (%)Recent Close ($)
1Cascades Inc.CAS-T1,416.226.512.9-
2Torex Gold ResourcesTXG-T1,824.934.921.2-
3KP Tissue Inc.KPT-T104.977.320.5-7.86.732.610.82
4Northland Power Inc.NPI-T6,661.017.115.9-0.13.536.734.33
5Uranium ParticipationU-T671.0514.3105.1-
6Vecima Networks Inc.VCM-T233.349.826.0-
7Cameco Corp.CCO-T5,521.776.312.6-11.50.615.113.95
8Enghouse Systems Ltd.ENGH-T4,161.113.741.9-2.90.7118.975.66
9North West Co. Inc.NWC-T1,499.512.721.2-
10Richards Packaging IFRPI-UN-T701.010.313.2-

Source: Morningstar CPMS

Emily Halverson-Duncan, CFA, is a director, CPMS sales at Morningstar Research Inc.

Story continues below advertisement

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies