Canadian stocks with strong dividends and efficient capital use.
This week, we searched for Canadian stocks with appealing valuations and steady dividend income to help find value in a volatile market.
We used Trading Central’s Strategy Builder to screen for Canadian stocks with attractive dividends and return on equity.
We began by setting a minimum market capitalization of $1-billion to ensure a focus on more stable and established companies with less volatility than smaller-cap stocks.
Next, we targeted companies with a price-to-earnings (P/E) ratio below the average P/E of the S&P TSX 60 Index, which sits at 19.44, to help find stocks with reasonable valuations.
To ensure companies are using capital efficiently to generate returns, we screened for stocks with a minimum return on equity of 10 per cent.
Finally, we added two dividend filters. Stocks must have a dividend yield of at least 2.5 per cent and a five-year dividend growth rate of 10 per cent or higher. This approach targets companies that not only provide steady income but also demonstrate a commitment to increasing payouts over time.
We have also included year-to-date and one-year price performance for each stock for your reference.
Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, ETFs, indices, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.
Topping our list is Quebecor Inc. QBR-B-T, a Canadian telecommunications and media company offering wireless, internet, TV and publishing services, primarily in Quebec. The company tops our list due to its strong return on equity of 38.49 per cent, reflecting efficient capital usage and strong profitability. Quebecor also boasts a 4.09-per-cent dividend yield, above the average of the S&P/TSX Composite Index, which sits at 3.24 per cent, combined with a five-year dividend growth rate of 23.16 per cent, demonstrating a solid commitment to shareholder returns. With a P/E ratio of 10.6, it trades at an attractive valuation relative to the broader market. Additionally, the stock has outperformed year-to-date, gaining 8.6 per cent, and is up 9.8 per cent over the past year, highlighting its resilience in a choppy market. The stock is currently trading at a new record high at the time of this writing.
Secure Waste Infrastructure Corp. SES-T, headquartered in Calgary, provides environmental and waste management solutions, specializing in resource recovery and industrial waste disposal. The company stands out on our list for having the lowest P/E ratio at 6.0, indicating a potentially undervalued stock relative to earnings. Additionally, it boasts the highest return on equity at 52.24 per cent, reflecting exceptional efficiency in generating profits from shareholder capital. Despite its strong fundamentals, the stock has faced recent pressure, declining 16.7 per cent year-to-date. However, with a five-year dividend growth rate of 25.44 per cent, it demonstrates a commitment to increasing shareholder returns, making it an intriguing option for value-focused investors.
Cenovus Energy Inc. CVE-T, an integrated oil and gas company headquartered in Calgary, offers a solid dividend yield of 4.06 per cent, with an impressive five-year dividend growth rate of 52.52 per cent, signalling strong shareholder returns. However, despite these strengths, the stock has struggled, declining 19.6 per cent year-to-date and 25.7 per cent over the past year, making it one of the weaker performers on the list. With a P/E ratio of 10.62, Cenovus trades at a reasonable valuation, but its near-term price action suggests investor caution amid volatility in the energy sector.
Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had an 11-per-cent annualized total return, compared with 10 per cent for the S&P/TSX 60 Index.
The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central with respect to investing in financial instruments. Investors should conduct further research before investing.
Stock prices are as of Tuesday’s close.
Gary Christie is Director of North American research at Trading Central in Ottawa.
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