By Peter Ashton
Friday, February 16th 2017
In The Globe and Mail, Peter Ashton uses Strategy Builder to find Canadian-listed stocks that offer low volatility.
We will be using Strategy Builder to search for Canadian-listed stocks that offer low volatility, high institutional ownership and strong dividend yields.
We begin by setting a minimum market-cap threshold of$5-billion. This will focus our search on medium- to large-cap Canadian stocks, which typically have higher-quality revenue streams than their smaller counterparts and also have a track record of performance.
We will also screen to include only stocks with institutional ownership levels of more than 50 per cent. Institutions such as pension-plan managers typically have longer-term investment horizons and are less likely to make portfolio changes (thereby moving the market for the stock) in the event of a market draw-down.
Dividend-paying stocks often provide refuge in the case of market turbulence because of their income-generating nature. We will constrain our list to stocks with dividend yields of 1.5 per cent or more.
Finally, to select stocks with lower-than-average volatility, we will filter using beta. We will select stocks with beta of between 0.5 and minus-0.5. Beta measures the price correlation of a security compared with the entire market. Stocks with beta in this range exhibit smaller correlation to over-all market moves than the average stock.
Topping our list is pipeline giant TransCanada Corp. TransCanada offers below-average volatility with a beta of just 0.31 and also provides a 4.3-percent dividend yield. On Thursday, the company announced fourth-quarter results that exceeded analyst expectations for both revenue and earnings. The company also announced its plans to go ahead with a $2.4-billion expansion of its NGTL pipeline in Western Canada.
The lowest volatility on our list belongs to Algonquin Power and Utilities Corp. with a beta very close to zero. Over the past month, Algonquin Power traded down by just over 4 per cent compared with over 6.4 per cent for the broader market. The company also has a very high level of institutional ownership at 75.3 per cent.
The largest company on our list is Canadian National Railway Co. with a market capitalization exceeding $70-billion. CN offers very low volatility (beta is 0.35), combined with excellent long-term price growth. The stock has gained almost 90 per cent over the past five years, all the while offering a dividend, which currently yields 1.9 per cent.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.
