What are we looking for?
With most of the second-quarter earnings results now in the books, we decided to screen Canadian companies for different criteria and to calculate the average results by region.
The screen
Our goal is to find out which regions offered the best shareholder returns, as well as sales growth, dividend growth and cash-flow stability, both in the short and long term.
One- and five-year total return includes the capital gains and dividends received.
One- and five-year sales growth: We excluded extreme data points to better reflect each region's overall performance. Only companies with a minimum market cap of $200-million and five years of historical data were considered in the calculations.
One- and five-year average dividend growth: Again, we excluded extreme data points to better reflect each region's overall performance. Only companies with a minimum market cap of $200-million and at least five years of dividend payments were considered.
Cash-flow stability: This ratio is called the coefficient of determination, or R-squared, and measures how close the cash flows are to the fitted regression line. We are looking for a number as high as possible (maximum 1.0), as this would indicate very predictable cash flows.
More about StockGuide
StockGuide is a powerful, accurate and thorough software for mining and screening critical financial data on Canadian companies. The platform offers information on major shareholders, financial ratios, per-share data and 20 years of financial statements to allow the user to build custom filters and reports.
What did we find?
With oil prices down more than 53 per cent over the past year and now near a six-year low, companies based in the Prairies got hit the most and were by far the worst performers in the past 12 months with a total return of minus 29.22 per cent. Quebec clearly stands out of the group with an average one-year total return of 17.56 per cent, and that's 10.94 per cent more than the Atlantic provinces, which are in second place with 6.62 per cent. Over the past five years, Quebec also comes in first place with a total return of 16.3 per cent, followed by Ontario at 11.3 per cent.
Quebec and the Atlantic provinces are the only two regions that show higher sales growth in the past 12 months compared with their five-year average numbers. All other regions are starting to see their sales-growth figures decelerate, even if they are still in positive territory.
All regions have seen their dividend growth rate decrease in the past 12 months compared with their respective five-year averages, and that could partly explain why many exchange-traded funds and mutual funds that follow a dividend growth strategy are lagging their respective benchmarks.
Even if the Prairies offered the worst one-year total return, the region still has the highest cash-flow stability/predictability co-efficient. Since the ability for a company to pay its dividends generally comes from the generated cash flow, more predictable cash flows could also mean more predictable dividend payments/hikes.
Jean-Didier Lapointe is a financial analyst at Inovestor Inc.