What are we looking for?
Stable Canadian dividend-payers to ride out market volatility.
The screen
Markets surged over the past two months following U.S. President Donald Trump’s re-election and pro-business rhetoric. However, investors may have underestimated his tendency for unpredictability, seen when he abruptly imposed tariffs and sanctions on Colombia after the country declined to accept U.S. deportation flights, only to reverse the decision once the country agreed to his terms. This episode highlights the potential for future uncertainty, as Mr. Trump has also threatened to impose tariffs on Canada, raising concerns about further volatility ahead.
With the potential for heightened volatility in the coming years and falling interest rates diminishing the appeal of traditional havens like savings accounts and bonds, stable, high-yield dividend stocks present an attractive alternative. These stocks offer a reliable way to generate income while providing a cushion against market turbulence, making them an appealing choice for investors seeking stability and growth in uncertain times.
Using FactSet’s screening tool, I identified stable dividend payers by applying the following criteria:
- Market capitalization greater than $1-billion
- Dividend yield greater than 4 per cent
- Four consecutive years of dividend increases (2020-24)
- Dividend payout ratio of less than 50 per cent, minimizing the risk of a dividend cut
- Traded on the S&P/TSX Composite
The 10 remaining companies were ranked by their dividend yield.
What we found
Only 10 companies passed our screen – fewer than in similar screens in previous years. This decline may reflect the recent rise in stock markets, as higher stock prices mean lower dividend yields. As interest rates continue to drop, savings rates and treasury bond yields will likely remain low, enhancing the appeal of these dividend payers.
Parex Resources Inc. PXT-T, a Colombia-focused oil and gas producer, topped our screen with an 11-per-cent dividend yield. Despite a 34.2-per-cent negative one-year total return on its stock, owing in part to weather-related flooding at its wells affecting production, Parex’s low dividend payout ratio of 25.7 per cent leaves ample room for future dividend increases. Investors should monitor the upcoming earnings call in February, where they are expected to report a 9-per-cent year-over-year production decline in 2024. The high yield and negative stock performance indicate that these factors may already be reflected in the share price.
Mullen Group MTL-T, one of Canada’s largest trucking and logistics provider, ranked fifth and is the only industrial company that passed our screen with its 5.6-per-cent dividend yield. With only 9.9 per cent of total revenues derived from the United States, Mullen is relatively insulated from any tariffs that Mr. Trump may impose. The company’s strategy of acquiring and integrating smaller competitors has kept profits relatively stable despite challenges in the Canadian trucking space. With interest rates falling, a strengthening economy could push up demand for trucking and logistics services, positioning Mullen well for sustained growth.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is an MBA Candidate at the University of California, Berkeley, Haas School of Business.
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