My Own Advisor

A long time ago, maybe like some of you, I received my summer 2011 edition of Canadian Business Magazine in my mailbox.  In that edition, I found the “Investor 500” series particularly intriguing.  In this series, amongst various “best of” articles I found “Best Dividend Stocks” (for 2011).   Based on a combination of modest dividend yield (>2.5%), moderate dividend payout ratio (<60%) and a strong 5-year dividend growth rate (>10%), the best stocks to own were as follows:

• Canadian Energy Services & Technology (CEU)
• Rogers Communications (RCI.B)
• Corus Entertainment (CJR.B)
• Royal Bank (RY)
• Enbridge (ENB)
• Intact Financial (IFC)
• Transcontinental (TCL.A)

This got me thinking, how would a similar screen today sniff-out great Canadian companies to invest in?  Are these companies still in the top one year later as of May 2012?

Very few are.

Using the following criteria via TMX Money, ignoring payout ratio for the time being,…

• Current dividend yield >3%
• 5-year average dividend growth rate >10%

…I got the following 15 results:

While this list is a few more than the 7 listed in the Canadian Business Magazine article from last summer, there aren’t many with over $500 million in market capitalization using the stock screening criteria I listed above.  So, the moral of the story - a lot can change in one year.   

What about that payout ratio?  BCE has a payout ratio in excess of 60%, as does Telus and Shaw.  Only a handful of these stocks have a dividend payout ratio under 60%.

Stock screeners are good tools for investors but not perfect.  They provide investors with the ability to filter through 1000′s of companies to match your investing criteria.  For some investors, that’s great but I don’t rely on them religiously.  For me and my approach to dividend investing, I think there are only about 50 Canadian companies worth owning.  A number of the stocks above won’t find their way into my portfolio – ever – because they fall short of my criteria in terms of market capitalization, lengthy dividend history, higher yields, mutiple dividend increases, increasing cash flow and much more.  Actually, I like owning companies you’ll find in the holdings of ETFs like XDV, CDZ and XIU.   The only company I’m considering adding to my portfolio from the list above in the short-term is Rogers (RCI.B).

That’s the only stock of course, until the summer 2012 edition of Canadian Business Magazine arrives in my mailbox.  That should happen later this week.

What about you?  Do you use stock screening tools?  Do you take your screening criteria seriously?