Stingy Investor Search - Contact - Subscribe - Login
  Home | Articles | Links | SNW
 
10 dividend stocks for bargain hunters

The bear market is back and Canadian investors have the claw marks to prove it.

The S&P/TSX composite is now down just over 20 per cent from its highs of early 2011. The European financial crisis and China's slowdown have taken a bite out of portfolios and continue to stalk the market.

Fortunately, there is good news even during a rough patch like this. Lower prices can be an opportunity for bargain hunters. In fact, a bear market can be an excellent time to track down a few juicy dividend stocks while they're on sale.

To guide us in our hunt, let's follow the path of conservative dividend investors - a group that has historically done quite well over the long haul.

Investors of this type tend to stick to larger companies because big guys tend to be more stable than small fry, which have the disconcerting habit of swooning after every economic twitch.

When it comes to size, I think it's good to employ a two-stage test. Start by looking for firms with market capitalizations in excess of $500-million, then search for those with revenues of $500-million or more. Each factor weeds out slightly different stocks and they work well in combination. For instance, by demanding large revenues you effectively eliminate many speculative junior mining concerns from consideration.

You can get a full list of large Canadian common stocks that trade on the TSX by taking a quick trip to globeinvestor.com's stock filter. If you do so this weekend, you'll likely find more than 200 stocks that pass the dual size test.

With such a long list of large Canadian stocks in hand you can develop a good sense of the dividend yields on offer. To form a picture of the dividend landscape, I've sorted all the stocks into groups based on their yields; I've then added up the number of stocks in each group. The result is displayed in the accompanying graph, which shows the distribution of large Canadian stocks by dividend yield.

Yields offered on the TSX
[larger version]


Dividend investors should be pleased that most large Canadian stocks pay dividends because that diversity allows for a good deal of choice when it comes to selecting the best ones for your portfolio.

It's relatively easy to find stocks with yields near 5 per cent, which seems quite generous these days when the yield on long-term government bonds is only about 2.5 per cent. But proceed cautiously when it comes to stocks with extremely large dividend yields. These stocks deserve additional care because an unusually high yield can be a sign that a company is in distress or under pressure. A high yield often indicates that the market is worried about a firm's prospects and suggests that a dividend cut may be in the offing.

The exact dividing line between a high yield and an extreme yield is a matter for debate. But stocks with yields in excess of about 6 per cent are ringing alarm bells at the moment. You should be sure to study such stocks intently before buying them.

For safety's sake, it's a good idea to stick to stocks with generous but not extreme yields. These days that means something in the 4-per-cent and 6-per-cent range. As it happens, there are about 50 such stocks to choose from - enough to give you considerable latitude in choosing ones that will fit your portfolio.

Assuming you're an investor who wants safety, you should start by examining each firm's earnings for reassurance that it can pay its dividend. That means looking for companies that earn more than they pay out in dividends. After all, if a firm consistently pays out more than it earns, it will eventually be forced to cut its dividend.

But while healthy earnings tilt the odds in your favour, they're no panacea. Consider the unfortunate case of Yellow Media. At one time the firm generated copious earnings and paid a sizable dividend to investors.

Alas, the firm's business was undermined by competition from the Internet. Its stock now trades for pennies a share and management eliminated the dividend months ago. The lesson here is that it is important to pay attention to more than just the numbers and to consider the less tangible aspects of a stock before buying it.

At this point, I like to turn to Benjamin Graham, the father of value investing, for some advice. Mr. Graham, who was a mentor to Warren Buffett, suggested that defensive investors stick to stocks with price-to-earnings ratios (P/E) of 15 or less and price-to-book-value ratios (P/B) of 1.5 or less.

Both ratios are classic value metrics. When buying low-P/E stocks you are trying to get lots of earnings for a low price. Low-P/B stocks offer copious net assets (based on their balance sheet values) at low prices. Since Mr. Graham suggested sticking to low-ratio stocks more than 60 years ago, many performance studies have backed him up.

Following Mr. Graham's recommendations, along with the previous criteria, leads to the 10 stocks listed in this accompanying infographic. They all get high marks for both their generous dividend yields and value characteristics.

CompanyPriceYieldP/EP/B
Bank of Montreal (BMO)$55.035.1%9.81.37
Calfrac Well Services (CFW)$21.774.0%5.11.36
Canaccord Financial (CF)$6.726.0%10.20.67
Capital Power (CPX)$23.315.4%15.00.56
Genworth MI Canada (MIC)$19.605.9%6.10.72
Great-West Life (GWO)$21.615.7%10.21.45
Husky Energy (HSE) $22.895.2%9.51.25
Power Corp of Canada (POW) $23.554.9%10.10.45
Power Financial (PWF) $25.955.4%10.70.88
Torstar Corp. (TS.B) $8.995.9%3.31.01
Data Source: Globeinvestor.com, May 18, 2012


Will these stocks fare well in the future? I have high hopes for them, but the market isn't that predictable. After all, such screens are just the starting point for further research and you should consider each stock's less tangible features before buying. But, for what it's worth, I own several and may well add a few more to my personal portfolio in the future.

First published in the Globe and Mail, May 26 2012.

 
Globe & Mail Articles
 Portfolios

 Dividend All-Stars for 2024
 250 Megastars for 2024
 Extreme yields
 The easy way
 Smaller stable dividend
 250 Megastars for 2023
 Champagne portfolio
 Screaming Value
 Blended momentum
 Dividend monster
 Frugal dividend
 Stable dividend
 Speads and recessions
 TSX 60 for value investors
 Looking at 10-year returns
 Watching for a bottom
 Oh, bother!
 Low P/E DJIA
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Long-Short
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

MoneySaver Articles
 2 Graham Stocks for 2018
 2 Stingy Stocks for 2017
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Old MS Articles
 Cdn Top 200 2018
 Cdn Top 200 2017
 Cdn Top 200 2016
 Cdn Top 200 2015
 Cdn Top 200 2014
 Cdn Top 200 2013
 Cdn Top 200 2012
 Cdn Top 200 2011
 Cdn Top 200 2010
 Cdn Top 200 2009
 Cdn Top 200 2008
 Cdn Top 200 2007
 Cdn Top 200 2006
 Cdn Top 200 2005
 US Top 500 2018
 US Top 500 2017
 US Top 500 2016
 US Top 500 2015
 US Top 500 2014
 US Top 500 2013
 US Top 500 2012
 US Top 500 2011
 US Top 500 2010
 US Top 500 2009
 US Top 500 2008
 US Top 500 2007
 US Top 1000 2006
 Dividends 100 2017
 Dividends 100 2016
 Retirement 100 2015
 Retirement 100 2014
 Retirement 100 2013
 Retirement 100 2012
 Retirement 100 2011
 Retirement 100 2010
 Income 100 2009
 Income 100 2008
 Income 100 2007
 Top Trusts 2006
 Top Trusts 2005
 Hot Potato
 Buffett Buys
 FB IPO
 Stocks that pay
 Value in the S&P500
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividends
 Dividend growers
 Graham's prescription
 The case for optimism
 Wicked investments
 Simply spectacular
 Small stocks, big profits
 Value that sizzles
 So simple it works
 No assembly required
 Investing by the book
 Invest like the masters
 A simple way to get rich
 Stocks for cannibals
 Car bites dogs
 So easy, so profitable
 Dogs of the Dow
 Money for nothing
 Yield of dreams
 Return of the master

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Flip Books



 
About Us | Legal | Contact Us
Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...