What are we looking for?
Canadian dividend-paying stocks draw interest by pairing attractive yields with the financial stability of mature companies operating in essential sectors. With the S&P/TSX Composite Index near record highs, the market’s resilience reinforces the appeal of mature, cash-generating businesses that can deliver stable payouts. In this screen, we are looking for companies that pair meaningful yield with consistent dividend growth, strong income-factor scores and low leverage to ensure those payouts remain sustainable through shifting market conditions.
The screen
We used Trading Central’s Strategy Builder to screen for companies with a market capitalization of at least $2-billion, focusing on established and stable leaders.
Our dividend criteria included a minimum dividend yield of 2.5 per cent, and a five-year dividend growth of at least 10 per cent.
We set a minimum threshold of 50 out of 100 for the Trading Central Income factor rating, which scores stocks on a scale from 0 (most bearish) to 100 (most bullish). The rating evaluates how reliable and resilient a company’s dividend stream is by combining dividend yield, short- and long-term dividend growth, and the payout ratio to highlight firms with strong, sustainable income characteristics.
Finally, we capped the debt-to-equity ratio at 0.50 to ensure we are focusing on companies with strong balance sheets and low financial risk. Income-oriented stocks with modest leverage are generally better positioned to maintain and grow dividends through economic cycles because they face fewer interest-burden pressures and lower refinancing risk, and they have more flexibility to reinvest cash flows rather than divert them toward servicing excessive debt.
More about Trading Central
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
What we found
Interestingly, all the companies that passed our screen were in the oil and gas sector, underscoring how the industry’s robust cash flow continues to support dependable dividends.
Topping our list is Suncor Energy Inc. SU-T, one of Canada’s largest integrated energy producers with a $75-billion market cap and operations that span the oil sands, refining and retail. With a price-to-earnings ratio of 14.62, a 3.83-per-cent dividend yield and a solid one-year return of 13.8 per cent, Suncor’s diversified operations and manageable 0.32 debt-to-equity ratio support its position as the highest-ranked name in our screen.
Freehold Royalties Ltd. FRU-T stands out for its royalty-based model, which generates stable cash flow without operating risk. Despite its relatively small $2.4-billion market cap, it posts the highest Trading Central Income factor rating on our list at 70 and delivers the richest dividend yield at 7.38 per cent, supported by a low 0.28 debt-to-equity ratio and a 28.79 per cent five-year dividend growth rate.
Peyto Exploration & Development Corp. PEY-T also emerges as a key outperformer, operating as a low-cost natural gas producer in Alberta’s Deep Basin with a $4.3-billion market cap. Peyto delivers the strongest one-year return at 22.8 per cent and the highest five-year dividend growth rate at 80.12 per cent, while maintaining a healthy 6.23 per cent dividend yield and a modest 0.45 debt-to-equity ratio.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past.
Using a five-year historical period with quarterly rebalancing, the screen described had an annualized return of 19 per cent, compared to 12 per cent for the S&P/TSX Composite.
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.
Data cited in this column are as of midweek last week.
Gary Christie is head of North American research at Trading Central in Ottawa.