Retirement 100: How we came up with the grades

Retirement 100: Canada’s best dividend stocks

What we considered in the quest for a dependable retirement portfolio

(Photograph by Liam Mogan)

(Photograph by Liam Mogan)

The fall has always been a magical time for Canadians as the leaves change and the harvest fills our plates. The crisp air reminds us of the months to come, but there is still time for a slice of pumpkin pie and a cup of apple cider. This is also the time of year when wise souls begin preparing for the winter. They bring their heavy coats out of storage, sock away preserves, and take care of small tasks that will make life easier when the snow arrives.

Similarly, you can start preparing for a comfortable retirement by putting together a dependable income-producing portfolio, and dividend stocks can help. They have a long and distinguished record of providing income to investors. And while stocks don’t offer the guarantee that comes with government bonds, the income they generate tends to grow over time.

To help you find the best dividend stocks in Canada, we’re pleased to present the latest edition of the MoneySense Retirement 100. It grades the largest dividend-payers in the country and helps you pick those that are right for your portfolio.

SUBSCRIBERS ONLY: Canada’s 100 best dividend stocks »

We’re happy to report that our efforts have paid off handsomely so far. If you had rolled your portfolio into our new batch of A-graded stocks every year since our launch in 2007, you would have enjoyed a total gain of 142%. You’d be up a total of 91% if you had followed stocks with either A or B grades. That’s pretty good, considering that the market suffered from a huge crash during that period. By way of comparison, the S&P/TSX Composite Index ETF (XIC), which tracks the broad Canadian stock market, logged a total return of just 38% over the same period. We also beat the dividend-oriented iShares Canadian Select Dividend ETF (XDV), which climbed by 58%.

Long-term results are one thing, but the Retirement 100 also generated solid returns over the past year. The 2013 A-graded Retirement 100 stocks advanced by 24% on average since last time, while those rated either A or B climbed 20%. In an unusual state of affairs, however, the index was a real competitor this year. The broader market surged over the past 12 months, with the S&P/TSX Composite ETF (XIC) advancing 24% and the Canadian Select Dividend ETF (XDV) gaining 20%.

To produce the Retirement 100, we grade each of Canada’s largest dividend payers based on its ability to provide generous income to investors for a reasonable price. The process is sophisticated, but the letter-grade results are simple—they’re as easy to understand as a report card.

To rate each stock we take a no-nonsense numbers-based approach. We start by scouring the Bloomberg database for detailed financial information on the largest dividend-paying stocks in Canada. Then we trim the list to remove firms that have been around for less than a year, and those lacking the detailed financial data we need. The grades we assign the remaining stocks are based on yield, reliability, and value.


The more money a company can send your way, the better. That’s why we give top marks to stocks with generous dividend yields. We also reward businesses that have grown dividends over the last five years, an indicator of the strength of their franchises.


We want some assurance that a company will continue to pay its shareholders. As a result, we favour stocks that earn more than they pay out in dividends. We give additional marks to those with little debt compared to their peers. After all, companies burdened by debt tend to be risky.


On the value front we want to buy lots of assets for a low price. The best grades go to companies with moderate or low price-to-book-value ratios. We also prefer profitable stocks trading at reasonable prices relative to their earnings.

Putting all these factors together we arrive at the final grade for each of the largest 100 dividend stocks in Canada. This year, only two earned an ‘A’, but 13 managed solid ‘B’s this time around.

Smart investors should also consider unique or intangible features that are not reflected in the hard numbers. For instance, if a mining company’s tailings pond recently collapsed, it could be on the hook for expensive environmental damages not reflected on its balance sheet.

Please use our grades as a starting point for your research. Before buying any stock, make sure its situation hasn’t changed significantly and that it’s right for you. While we’re overjoyed with our long-term results, that doesn’t mean we can guarantee you’ll make a fortune with every A- or B-rated stock. The market is too wild and woolly for that. Nonetheless, we think such stocks deserve your attention and further research. Perhaps while sipping a little apple cider this fall.

SUBSCRIBERS ONLY: Canada’s 100 best dividend stocks »

Norm Rothery, CFA, PhD, is the founder of and tweets as @NormanRothery.