Best Canadian stocks 2016: Q&A

Canada’s best stocks: Questions answered

Learn all about this year’s top picks and how they were selected


I’m very pleased to say that the latest edition of the MoneySense Top 200 and Top 500 guides to Canadian and U.S. stocks can be found online and in the December issue of the magazine. Get your copy today to learn all about this year’s top picks and how they were selected.

We’re always happy to get questions from readers about the Top 200 and Top 500. This week I’ll highlight some of the answers to past questions while waiting for new ones.

Q: Over what period do you measure returns?

A: The returns are measured between the dates mentioned in the annual data tables. This year’s date can be found at the top of the price column.

Q: Do cited gains include the cost of buying and selling securities over the given time period?

A: The returns do not include trading costs or taxes, which vary by person. Even a flat commission fee varies on a percentage basis depending on the size of the portfolio. Nor do the returns include dividends. The same goes for the returns of the index ETFs used for comparison purposes.

Q: How do you determine the top 200 and top 500 stocks for your respective Canadian and U.S. lists?

A: We grade the largest stocks in each country based on revenue over the last 12 months. But we also try to remove stocks if they are in the last stages of a takeover or, more rarely, if the data we have on them is lacking.

Q: Why are the dates from which the stock prices are cited weeks old by the time I get my copy of the magazine or read the list online?

A: We do try to reduce the delay as much as possible. But it takes time to put the magazine together and get it into your hands. Collecting and analyzing the data just represents the start of the process. We also have to write the articles, calculate the performance figures, create the graphs, and present the results in an appealing way.  The whole package then has to be edited and checked.  That’s all before it’s sent off to the printers and translated to the web for distribution.

Q: Do you cherry pick the time periods over which you measure the Top 200/Top 500 returns to make them seem better than they are?

A: No, they coincide with when we collect the data, which is itself as close as possible to the publication deadline.

Q: According to the Couch Potato methodology, it’s impossible to beat the market after fees over long periods of time, yet the Top 200 seems to have done just that. How can you explain that?

A: The question makes an assumption that is not true. It is possible for some people to beat the market over the long-term on an after-fee basis. For instance, Warren Buffett has famously done so for many decades.  (The converse is also true.)  While we don’t explicitly incorporate fees into our return estimates, such costs are generally quite low.  The magazine itself is a bargain – either on the newsstand or by subscription – and commissions at discount brokerages tend to be modest.  In comparison, index mutual funds can cost more.

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 November 12. 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
Potash (POT) $26.94 1.95 12.39 8.07% 7.52%
TransCanada (TRP) $41.12 1.73 17.35 5.76% 5.06%
National Bank (NA) $43.25 1.57 9.57 10.45% 4.81%
Bank of Nova Scotia (BNS) $59.88 1.49 11.19 8.93% 4.68%
BCE (BCE) $56.66 3.95 18.64 5.37% 4.59%
CIBC (CM) $98.46 1.97 11.01 9.08% 4.55%
Shaw (SJR.B) $26.66 2.47 14.89 6.71% 4.44%
Bank of Montreal (BMO) $75.29 1.36 11.88 8.42% 4.36%
TELUS (T) $40.78 3.3 17.28 5.79% 4.32%
Royal Bank (RY) $74.96 1.96 11.41 8.76% 4.22%

Source: Bloomberg, November 12, 2015

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.)


How the Mad Men lost the plot.
The distance between online ads and junk email – of the worst sort – has regrettably been narrowing.  It’s a big reason why some readers are turning to ad blocking software, which is bad news for advertisers and media companies alike.

It’s time for advertisers to up their game.  After all, the best ads attract their own audiences.  For example, take a look at the duelling Christmas ads from John Lewis and Sainsbury’s.

Man On The Moon, with about 14 million views, so far.

Mog’s Christmas Calamity, with about 12 million views, so far.