The Safer Dogs of the TSX returned from their vacation this week. The occasion prompted me to take a closer look at the developments in the world of the high-yield blue-chip stocks over the last six weeks.
Seven stocks passed the Safer Dogs test on both April 26 and June 8. They are: the Bank of Nova Scotia (BNS), BCE (BCE), CIBC (CM), National Bank (NA), Power Corp. (POW), Shaw (SJR.B), and TELUS (T). All should be familiar names. The newcomers this time around are: the Bank of Montreal (BMO), Emera (EMA), and Sun Life Financial (SLF).
Back in April the highest dividend yield of 4.58% was offered by both CIBC and BCE. This time around Power Corp took home top prize with a dividend yield of 4.96%. Dividend yields also climbed at the bottom end of the pack with April’s Royal Bank (RY) yielding 3.65% and June’s Sun Life yielding 3.82%. Overall, the Safer Dogs provided an average dividend yield of 4.09% in April and 4.32% in June. The average dividend yield climbed by 23 basis points over the period.
The Safer Dogs now represent a better value on the earnings front than they did in April. The average earnings yield of April’s pack was 6.99% while June’s pack generated an average earnings yield of 7.92%. That represents an increase of 93 basis points. (Inverting those figures turns them into price-to-earnings ratios of 14.31 and 12.63 respectively.)
The Safer Dogs now appear to be relatively cheap—provided they can grow their earnings over time. If a good part of those earnings can be turned into dividends or share buybacks then shareholders will likely be a happy bunch.
That said, earnings aren’t guaranteed and have a habit of varying from year-to-year. They also have a nasty tendency of swooning during hard times. As a result, low-P/E stocks don’t always provide high returns. Nonetheless, with a little luck, investors who stick with the Safer Dogs should reap rewards over the long term.
Safer Canadian Dogs
Investors following the Dogs of the Dow strategy want to buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders.
The Dogs of the TSX works the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada.
My safer variant of the Dogs of the TSX tracks the 10 stocks in the index with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s a task that’s easier said than done.
Here’s the updated Safer Dogs of the TSX, representing the top yielders as of June 8. The list is a good starting point for those who want to put some money to work this week. Just keep in mind, the idea is to hold the stocks for at least a year after purchase – barring some calamity.
Safer Dogs of the TSX
|Name||Price||P/B||P/E||Earnings Yield||Dividend Yield|
|Power Corp (POW)||$28.89||1.02||10.33||9.68%||4.96%|
|National Bank (NA)||$54.03||1.8||11.35||8.81%||4.29%|
|Bank of Montreal (BMO)||$91.60||1.47||11.48||8.71%||3.93%|
|Bank of Nova Scotia (BNS)||$77.85||1.7||12.28||8.14%||3.90%|
|Sun Life Financial (SLF)||$45.50||1.4||11.18||8.95%||3.82%|
Source: Bloomberg as of June 8, 2017
Price: Closing price per share
P/B: Price to Book Value Ratio
P/E: Price to Earnings Ratio
Earnings Yield: Earnings divided by Price, expressed as a percentage
Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage
As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)