What are we looking for?
There is a strong culture of dividend investing in Canada, partly due to the prominence of sectors such as banking, utilities and telecommunications, which traditionally pay higher dividends than other industries. Dividends give a mix of growth and income, which helps protect against rising prices and market ups and downs. This week, we screened for outperforming Canadian stocks that have attractive dividends.
The screen
We used Trading Central Strategy Builder to search for Canadian stocks with attractive dividends and strong price performance.
We began by screening for Canadian stocks with a market capitalization of $1-billion or more. This will limit our search to the largest and most stable stocks in the Canadian market.
To find stocks with attractive dividend levels, we screened for dividend yields of 3 per cent or more.
To identify stocks with sustainable dividends, we screened for a dividend coverage ratio of 100 per cent or higher. The ratio is calculated by dividing the company’s earnings over the past 12 months by the dividends paid in the same period, and then expressing the result as a percentage. This measure tells us how many times the company’s earnings can cover the dividend payout – higher dividend coverage ratios are preferred.
Finally, we filtered for Canadian stocks that have outperformed the S&P/TSX 60 Index year-to-date and are trading within 10 per cent of their recent 52-week highs. These stocks are showing upside momentum and tend to have better subsequent returns than those far from their highs.
We have also included one-year price-to-earnings ratios for each stock and its industry for your reference.
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What we found
Five out of the 13 companies that made the list are in the oil and gas sector.
Topping our list is Suncor Energy Inc., SU-T which has the second-largest market cap in the group at $65.7-billion. The stock has a dividend yield of 4.3 per cent and a healthy dividend coverage of 283 per cent. The stock price is up 19.4 per cent year-to-date and it is trading within 10 per cent of its most recent 52-week high, recorded on May 23.
Royal Bank of Canada RY-T has the largest market cap on our list at $204.8-billion. The stock has a dividend yield of 3.9 per cent, dividend coverage of 200 per cent and is trading within 4 per cent of its most recent 52-week high, achieved on May 31.
Aecon Group Inc., ARE-T a Toronto-based construction and infrastructure development company, has the highest year-to-date stock price gain on our list at 24.9 per cent and is within 4 per cent of its 52-week high hit on April 4. The dividend yield is 4.6 per cent, with dividend coverage of 288 per cent.
Energy producer Paramount Resources Ltd. POU-T has the highest dividend yield on our list at 5.9 per cent and dividend coverage of 153.3 per cent.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.
Gary Christie