What are we looking for?
Two weeks ago, we looked at S&P 500 companies that generate high economic profit for the shareholders, above-average dividend growth rates and that are trading at interesting multiples.
Today, let's do the same for Canadian-listed companies.
The screen
We have screened our Canadian universe (about 1,000 stocks) with several different challenging criteria to make this filter as complete as possible.
We are looking for high economic and accounting performance, as well as attractive valuation multiples to identify long-term investment opportunities.
Here are our seven screen criteria:
- return on capital is above 10 per cent;
- An economic performance index, or EPI (return on capital divided by cost of capital) is above 1.3. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
- all companies pay a dividend;
- one-year dividend growth is above 10 per cent;
- five-year average dividend growth rate is above 10 per cent;
- price-to-earnings ratio is 15 or below;
- current price-to-earnings ratio is below the five-year average.
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA (economic value added) model to quickly and easily identify investment opportunities.
In addition to providing detailed reports on more than 6,500 companies (Canadian and U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.
What did we find?
Only nine Canadian companies make the cut.
The current market pullback offers long-term investors a chance to buy the dip, especially with strong names such as Royal Bank of Canada.
It doesn't happen very often that you can buy Canada's biggest market cap – which has not decreased its dividend in the past 15 years – with a yield close to 4.5 per cent. The last time this happened was in early 2009, and RBC's total return since then has been about 210 per cent.
Magna International Inc. is also attractive at these levels. The stock is currently under pressure partly because of the Volkswagen scandal, but this customer only represents 11 per cent of their annual sales.
Investors should contact a professional or do their own research before investing in any of the stocks shown here.
Jean-Didier Lapointe is a financial analyst at Inovestor Inc.