Once or twice a year I like to update my watchlist for stocks to keep an eye on in the coming months. My favorite way of doing this is by running a custom stock screener, using multiple metrics to slowly narrow the list down. Since there are so many stocks to go through – I like to start by first narrowing it down to some quality names, who have a history of paying dividends , and luckily there is a great tool for this- The Canadian Dividend All Star List. This list is updated each month and is a great starting point for anyone looking for quality dividend stocks in Canada.
This list includes just about every metric you can think of. Personally I use about 25-30 different metrics when I run my custom screen, and for each I consider a value that meets my risk profile and investment goal. I then highlight any stocks in green that meet/exceed this target and any in red which do not. For a very basic example, let’s say the metric I am evaluating is payout ratio. In this example, let’s assume I think a payout ratio of 40% or less is great, and anything over 70% concerns me. In this scenario I would highlight all stocks with a payout ratio under 40% in green(and score them +1), and all stocks over 70% in red(score of -1). Anything in between would be left as is(no score). If you want, you can also assign different weights to different metrics. For example, perhaps “value” is most important to you – so you may weight P/E higher than dividend growth rate. I do this for each metric, and when I am done I tally up the scores. What I like about this method is that although it’s not really scientific in it’s approach, it allows each individual investor choose stocks that fit THEIR own personal comfort level. I would also like to note that I use this ONLY as a starting point. Once I end up with my top scoring stocks – I never dive right in and purchase them. This is just a starting point. Once I’ve narrowed it down to my top 10, I then go to the company website to learn more about the company, read the investor presentations, financial statements and analyst comments to dig in further.
Blind Stock Screen
As regular readers may know, I am a pretty big fan of whisky (specifically bourbon), and sometimes I like to do blind taste tests. I prefer to do tastings blind, because I want to know which bourbons truly provide the best value, and I want to ensure I am not tricking myself into thinking I like it because it’s expensive, or because a bunch of people say how great it is. When I am looking for value in stocks, I take the same approach. Here is a pic from the last blind tasting we did (back when we could still see people in person):
Prior to starting the screen I always HIDE the company name & stock symbol. I do this because I don’t want any bias to come into play, and honestly, I like being surprised at the end to see if certain companies I assume fit my investing profile actually do or not. In the past, some of my top performing stocks have come from this method, including: Goeasy, Manulife & Transcontinental.
Stock Screener Metrics Used
I would again like to reiterate that each investor will probably have different metrics they use, since a lot of us have different goals. Personally, I consider myself a value investor who is interested in long term dividend paying stocks who pay a growing dividend. Here are just a few of the metrics I used in my stock screener (in no particular order) :
- Dividend Growth Rate (I use the 1,5 & 10 year growth rates)
- Dividend Growth Streak (# of years)
- Payout ratio (Trailing 12 month & Estimated next 12 month)
- Trailing 12 month Earnings Per Share & Estimated EPS
- Payout Ratio
- Price/Earning Ratio
- Earnings Per Share Growth (1 year, 3 year, 5 year & 10 year)
- Sales Per Share Growth
- Difference between analyst price target & current share price (I don’t put too much stock into this one)
Canadian Dividend All Stars To Watch
So which companies scored best on my most recent screen? There are a few names I was not surprised to see, a few that I was surprised to see, and if I am being completely honest, a couple of names I had never even heard of. By doing this blind screen it can:
- Introduce you to new potentially great stocks (to do further research on)
- Confirm that some preconceived notions you had about some stocks are correct (or incorrect)
- Takes any sort of bias/group think out of your decision making.
Top 10 Canadian Dividend Stocks
Here are the 10 stocks that ranked highest in my blind screen.
- Equitable Group Inc (nearly a perfect score)
- Enghouse Systems Ltd
- Goeasy Ltd
- PFB Corp
- Empire Company
- iA Financial Corporation
- CCL Industries
- Canadian Tire Corp Ltd
- Intact Financial
- Canadian Pacific Railway
The top 10 includes a few companies I either already own, or have been looking to purchase(Equitable Group, Go Easy, Empire, CCL, etc), as well as one company I had never heard of (PFB Corp). $EQB scored the highest of all stocks by quite a bit, though I believe almost every company on this list would be a great long term hold. I’ve now officially added PFB to my watchlist and plan to dig a little deeper into it.
I would also like to include a couple that fell just outside the top 10 that I will also be adding to my watchlist. They are:
- Hardwoods Distribution Inc
- Alimentation Couche Tard
- Dollarama Inc
- Brookfield Asset Management
- TD Bank
Having recently purchased Couche Tard I am happy to see it ranked highly in my screen. I’d also like to point out that although I don’t know much about Hardwoods Distribution Inc, every single time I have run a screen in the last couple of years it has shown up. I am not sure why I haven’t bought it yet (I wish I did, as it has gone up about 90% since my last screen).
I’m glad I’ve been able to add a bunch of names to my watchlist, now I just need this damn market to cool down so I can dive in and make some purchases! If you have any questions or metrics that you use when evaluating stocks, please let me know in the comments or reach out on twitter!
4 thoughts on “10 canadian dividend all star stocks to add to your watchlist”
I like your screening methodology but most if not all your picks pay below 2%. How are you going to balance that so your average dividend yield doesn’t go really down? I have been thinking to add Consumer Staples like Metro, Loblaw but hesitated due to their not very high but still good dividend. Thoughts on that?
It all comes down to your own personal situation. Do you need the income from dividends now? If so – you probably want to balance it out with some higher yield stocks/reits, etc.
Im still in my 30s, so I am much more interested in total return vs just income/dividends right now. That said, all of these are increasing their dividends each year, and have a good shot at capital appreciation as well.
Thanks for your research!