The Safer Canadian Dogs list focuses on the large dividend stocks of the S&P/TSX 60 index, which are best suited to conservative stock investors. But many mid-sized companies also pay generous dividends and are worth a second look by adventuresome souls.
The main difference between large and medium firms is that the latter sometimes have a hard time weathering the economic storms that the big guys can shrug off. Mind you, both are vulnerable to crashes and big companies do lose their way from time to time.
In addition, smaller firms generally have more room to grow whereas many of the largest companies have already expanded as much as they can. Even worse, studies have shown that giant stocks under perform smaller ones over the long term.
That’s why I went on the hunt for mid-sized stocks this week, which I define as those with market capitalization (shares outstanding times price per share) between $1 billion and $5 billion. While the exact delineation between small, medium and large stocks is open to debate. Stocks worth more than $1 billion are large enough to be taken seriously by portfolio managers and still small enough to have reasonable growth prospects.
Just like the Safer Dogs, I’m screened for stocks with high yields that don’t pay more to investors than they earn. Many stocks pass the initial test, but I decided to highlight five top yielders for further consideration.
Emera (EMA) is a large electric utility based in Halifax with operations in Nova Scotia, Maine and Barbados. It’s the largest stock of the group with a market capitalization of $4.8 billion and $2.7 billion in revenues. Dividend investors will like the firm’s 4.6% yield and dividend growth history. The firm also happens to be one of the cheapest of the five stocks because it trades at only 12 times earnings.
DH Corp (DH) is based in Toronto and provides data processing and outsourcing to financial institutions. But you might be more familiar with it under its previous name Davis + Henderson. The company pays a 3.9% yield. While its dividend didn’t grow for a long time after the crash of 2008, it has been increasing more recently.
WSP Global (WSP) is a large engineering firm based in Montreal that does business globally. Investors will appreciate the firm’s 4.2% yield. However, the company has only grown its dividend infrequently and, instead, occasionally pays a special dividend. WSP trades at 1.7 times book value and a rather rich 23 times earnings.
Russel Metals (RUS) processes and distributes metals in North America and calls Mississauga, Ont. its home. Alas, it has a worrisome past for income investors. On the plus side, it currently pays a 4.3% yield and its dividend has grown in recent years. But it still pays less than it did before the crash of 2008, which prompted the company to cut its dividend in half.
Superior Plus (SPB) is a gas utility based in Calgary that provides energy services, specialty chemicals and construction products. It has a 4.3% dividend yield. But its dividend record is problematic because the company cut its payments twice in 2011. More positively, its stock has bounced off its lows and, with a little luck, its dividend will recover over time.
As you can tell, the mid-sized high-yielders come with a few warts. But that shouldn’t stop you from giving them a second look.
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 earning more than they pay in dividends. 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 Sept. 26. 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.
|Name||Price||P/B||P/E||Earnings Yield||Dividend Yield|
|Canadian Oil Sands (COS)||$20.58||2.09||12.7||7.87%||6.80%|
|Potash Corp (POT)||$39.16||3.4||22.24||4.50%||3.99%|
|Husky Energy (HSE)||$30.92||1.49||15.46||6.47%||3.88%|
|Bank of Montreal (BMO)||$82.74||1.77||12.75||7.84%||3.77%|
Source: Bloomberg, Sept. 26, 2014
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.)
New & Noteworthy
Larry Swedroe makes the case for large value stocks globally. That’s not hard to do because they’ve outperformed over the very long term.
Just For Frugal Fun
Marie Engen points to more than 10 things that everyone should pay up for. While I’m tempted to say, “Bah! Humbug!” most of the suggestions seem to be quite reasonable. I’m just not sure about the oil change advice because I was informed by a smart experimental physicist, who also happens to be the son of a mechanic, that frequent oil changes can do more harm than good.