The Dividend All-Stars grades all of the dividend-paying stocks on the S&P/TSX Composite. While there are many dividend paying companies outside of this select group, we ensure we’re targeting the largest and most liquid stocks in Canada by focusing our ranking on the index. For a company to earn top marks, it must pass three tests: Does it offer an attractive yield? Can it sustain a steady flow of income to investors? And is it reasonably priced?
The process sounds simple, but it can be a lot of data to digest. We take care of the heavy lifting by condensing everything down into a simple letter-grade system that helps you assess each stock’s investment potential.
A-grade stocks are our top picks, but Bs also may be worth your attention. Companies that are unable to earn high marks in all of our categories earn Cs, while companies that you may not want to buy for their dividends earn Ds or, in some cases, Fs if they have a weak outlook.
Before you log into your discount brokerage to buy these stocks, remember that this is a purely quantitative analysis using data from Bloomberg and Morningstar. We remove companies that lack the information we need to complete our report. The ranking doesn’t consider how the economy could affect the company’s earnings or measure the talent in the executive suite.
Here’s the complete breakdown:
We award top marks to companies sporting attractive yields with a history of growing their dividends over the past five years. With this two-pronged approach, we hope to identify companies that both offer attractive yields and are well positioned to grow their payouts over time. This accounts for 40% of the overall score.
Having a high dividend yield means nothing if the company can’t afford to maintain it. High yields can also be a sign of trouble caused by a sudden drop in a company’s share price. To try and avoid this pitfall, we zero in on companies that we think will be able to sustain their dividends. For this part of the score, we look for companies that earn more than they pay out to ensure they have the means to continue their dividend even if they hit a minor setback—COVID-19 notwithstanding.
As part of this score, we’re also screening for profitable companies with growing earnings that are not weighed down by debt relative to their peers. This accounts for another 40% of our final score.