Stock Talk- Dividend ideas with a twist

Looking for a safe play in these market conditions.

Ashley Redmond 22 October, 2012 | 1:00PM
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Ashley Redmond: Hi everyone and welcome back to this month's edition of Stock Talk. Of course, I'm here with Melissa, to discuss dividend ideas with a twist for the investor.

So, Melissa thanks so much for joining me.

Melissa Kahnert: Ashley, it's great to be here today.

Redmond: As of late, dividend paying companies have been really popular with investors due to market conditions.

Kahnert: Definitely. Actually we've explored the dividend story in a lot of our Stock Talk episodes, just because it's so appetizing for investors. The reason being they are all looking for a little bit of a safe play with their investments, especially with these recent market conditions we've all experienced.

Redmond: That's great. And how did you create this dividend strategy?

Kahnert: For today, we actually took the top 100 Canadian stocks in the CPMS universe based on trading volume and with dividend yield. We further selected these stocks with the top 20, based on their dividend yield ranked from highest to lowest. We then put a payout ratio, a maximum of 80% on these stocks to just ensure that these companies have enough operating cash flow earnings to increase dividends should they choose. At the end of the day, we have the top high yielding companies that are the most liquid in the market and have the opportunity to potentially increase dividends for investors.

Redmond: And the results look really good for the dividend investor. I have here – listing companies with yields ranging from 4.4% to 8.3%.

Kahnert: Exactly, I mean, if you just take a quick look at the first two on the list we can definitely see that we have Bonavista Energy and Penn West Petroleum just coming up in our first and second place both with 8.14% and 8.07% yields, respectively. I mean, that is definitely appetizing for any investor.

Redmond: So, now that we have a list of securities that match our screening profile, how can we test these ideas historically to see how they would have performed in previous market conditions?

Kahnert: Using the CPMS backtest software we can do a lot of magic when it comes to historical performance. For today what we'll do is, we'll go back to 1986, and test this portfolio, re-selecting these top 20 stocks annually and see how the performance panned out over the years.

Redmond: That's quite impressive.

Kahnert: Yes. And the backtest results are even more impressive. Between 1986 and the end of this past July, our strategy would have posted an annual return of 13% compared to the 8.1% return produced by the S&P/TSX Total Return Index. This hypothetical portfolio would have generated positive returns in 23 of the 26 years, while the benchmark only had 18 positive years in comparison.

Redmond: Thanks so much, Melissa. That was great and a ton of ideas for investors.

Kahnert: Definitely, and although historical performance can never guarantee future performance – some great stories for the dividend investors today.

Redmond: Great. And, of course, Melissa is not providing financial advice and we do encourage you to speak with the financial planner or advisor before selecting stocks. CPMS software is only available to institutional clients and investment advisors, but you can find free stock quotes at the top of morningstar.ca.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BCE Inc44.23 CAD-1.36Rating
Capital Power Corp36.42 CAD-0.52
Dream Office Real Estate Investment Trust Registered Shs Series -A-20.07 CAD-6.43
Russel Metals Inc40.86 CAD0.07

About Author

Ashley Redmond

Ashley Redmond  Ashley Redmond is a Vancouver-based freelance writer.

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