What are we looking for?
As part of our occasional series on income stocks, my associate Allan Meyer and I thought we would take a closer look at mid-cap Canadian dividend payers using our investment philosophy focused on safety and value.
The screen
We started with Canadian-listed equities with a market capitalization between $1-billion and $10-billion. Some investors, particularly retirees, love income. Allan and I like to get paid while we wait for capital appreciation and dividends generally reflect safety and stability.
Dividend yield is based on the share price divided by the projected dividend payments over the next year. All securities listed yield 4 per cent or more.
Payout is the dividend payment divided by earnings. A lower number is preferred and implies the dividend is safer. It could also signal the ability for a future dividend bump, while a number over 100 could signal the potential for a cut. We've capped the payout at 100.
Price-to-earnings is the share price divided by the earnings per share. It is a valuation metric. The lower the number, the better the value.
Earnings momentum is the change in annual earnings over the past quarter. A positive number indicates earnings are increasing; the opposite is true for a decrease. Increases could hint at future dividend raise, and vice versa for decreases. And increasing earnings usually leads to price appreciation.
Lastly, we looked at debt-to-equity. A smaller ratio indicates lower levels of debt and can be viewed as a sign of safety. A number under 100 implies a company has enough equity to pay its debt obligations. It is important to note that metrics and their implications can vary widely across industries and sectors.
What did we find?
Real estate investment trusts dominate the list for their high yields. Pure Industrial is worth a look but an ETF could be a way to play the sector without exposure to individual security risk. BMO and First Asset offer options – ZRE and RIT respectively.
Genworth MI Canada Inc. and Lucara looks interesting as they score well on most metrics.
Investors should contact an investment professional or conduct further research before buying any of the securities listed here.
Sean Pugliese, CFA, is an investment portfolio manager at Wickham Investment Counsel, helping individuals, families and other investors.