What are we looking for?
Canadian-listed, high-quality dividend-growth companies with strong profitability, solid balance sheets, sustainable dividend yields and a consistent track record of dividend growth, supported by sufficient market capitalization and financial stability to maintain long-term income compounding potential.
The screen
We began by setting a minimum market capitalization threshold of $2-billion to ensure a focus on more stable, established Canadian-listed companies with reduced volatility compared with smaller-cap stocks.
Next, our criteria focused on profitability and balance-sheet strength, selecting companies with a return on assets (ROA) of at least 5 per cent and a debt-to-equity ratio below 0.75, helping to identify businesses with efficient capital utilization and conservative leverage profiles.
To emphasize sustainable income generation, we included companies offering a dividend yield of at least 2 per cent, combined with a five-year dividend growth rate of 15 per cent or higher, ensuring that selected companies demonstrate both current income appeal and a strong commitment to raising shareholder payouts over time.
Sector and industry classifications, along with the price-to-earnings ratio, year-to-date and one-year price performance are provided for reference.
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
The applied screening criteria resulted in a list composed entirely of Calgary-based oil and gas companies, underscoring the sector’s strong combination of profitability, dividend growth and balance-sheet strength under the selected screening criteria.
Topping our list is Whitecap Resources Inc. WCP-T, an oil and gas exploration and production company focused on light oil and liquids-rich natural gas assets across Western Canada. With a market capitalization of $16.07-billion and a dividend yield of 5.51 per cent, Whitecap ranks first in the screen because of its balanced profitability, income generation and dividend growth. The company is indicating return on assets of 6.31 per cent, a conservative debt-to-equity ratio of 0.33, and a strong five-year dividend growth rate of 32.38 per cent, supported by solid recent performance with shares up 13.3 per cent year-to-date and 35.9 per cent over the past year.
Among the screened companies, Freehold Royalties Ltd. FRU-T, a royalty-focused energy company that earns revenue from oil and gas production on lands it owns rather than operating wells directly, stands out with the highest return on assets at 9.97 per cent. The company also offers one of the most attractive income profiles in the group, delivering a 6.41-per-cent dividend yield and a five-year dividend growth rate of 28.79 per cent, while maintaining a relatively modest debt-to-equity ratio of 0.28.
Peyto Exploration & Development Corp. PEY-T, a natural-gas-focused exploration and production company concentrated in the Alberta Deep Basin, posted the strongest dividend growth rate in the screen at 80.12 per cent over the past five years. Peyto combines this exceptional dividend growth with a 5.08-per-cent yield, a return on assets of 6.73 per cent, and strong price momentum, with the shares advancing 14.9 per cent year-to-date and 64.1 per cent over the past 12 months.
Trading Central Strategy Builder provides a backtesting 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 outperformed the benchmark with a 26-per-cent total return compared to 12 per cent for the S&P/TSX Composite Index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect to investing in financial instruments. Investors should conduct further research before investing.
Gary Christie is head of North American research at Trading Central in Ottawa.