Year after year, I study both the Canadian and American stock markets to find the best dividend growth stocks. For the past 4 years, I have noticed something sad; the choice for high quality dividend growth Canadian stocks is very narrow.
Just for fun, I pulled out results using the following screener:
dividend yield over 3%
dividend payout ratio under 80%
5 year dividend growth positive
5 year revenue growth positive
5 year EPS growth positive
as you can see, I wasn’t very picky and simply started with an “acceptable” level of fundamental information. Basically, all I’m asking is to find stocks that show positive revenue, profit and dividend growth. In other words; companies that make money and have a strong potential to continue to to so.
How many stocks do you think this filter showed? 21!
What is even worse, is that you always get the same old picks: financials (7), energy (3) and telecom (3) and REITs (7) and one techno (Calian technologies). Sometimes, readers tell me I’m taking stocks with small dividend yield… did you know that there are only 365 stocks with a dividend yield over 3% in Canada? and I that’s without adding any other filters!
After this quick filter, I started to go a little deeper as I wanted to write about stocks that are somewhat unknown to the common investor. This wasn’t an easy task! But here are a few picks that don’t show perfect fundamentals but still follow my 7 DSR INVESTING PRINCIPLES.
BLACK DIAMOND GROUP (BDI)
I thought it was interesting to come back with this pick as it did very well in 2012 but is currently taking a real beating. BDI’s stock price is dropping like there is no tomorrow mainly because the oil barrel is dropping like a stone. They provide modular buildings mainly used in Northern Alberta where there are several drilling and oil exploration activities. In other words; if the price of oil drops; exploring further to produce more oil sand become risky and not profitable. Then, nobody needs modular buildings to live in for a few months/years.
On the other hand, Black Diamond now trades with a PE ratio of less than 16, offers a 4.70% dividend yield and still show strong fundamentals. Will the future be brighter for this company? I think that if you are patient enough (and earning almost a 5% dividend is enough to wait), you can make a very good bet on this company.
When I looked at the other 20 companies, I didn’t find anything very interesting worth mentioning. this is why I decided to sacrifice one metric – the earnings growth over 5 years – to see if we could find something interesting… and I did!
AGRIUM (AGU)
Agrium took a very important hit in 2012 when the price of potash dropped after a game changing event in this industry. This explains a small drop in the earnings of less than 4% over the past five years.
This make the pick a less stellar choice, but helps many dividend investors who are willing to take additional risk to diversify. We can expect a great future for the company which delivers potash, a crucial product in the agriculture industry. We are continuously looking to improve our productivity to feed more people with less land used.
The payout ratio is relatively low (50%) for a company that is slowly digging out of a big hole. With a dividend yield of 3%, this makes it another good pick.
WSP GLOBAL (WSP)
I recently wrote about WSP global (read the article here) and this stock is also part of our DSR portfolios. WSP went through a few difficulties in 2012 and the company is now “coming back from the dead”.
Revenues grew by 39% and the payout ratio is under 60%. The company is getting more and more contracts as the industry is in need of more civil engineers to handle current and future projects.
Unfortunately, even by removing the earnings growth criteria, I wasn’t able to find many companies. Once again, I decided to look in the low dividend yield area to see if there wasn’t one or two hidden gems…
FINNING INTERNATIONAL (FTT)
Finning International distributes Caterpillar products North of the border. Once again, if you are looking for a good company to diversify your portfolio, I think this stock deserves your attention. It meets all the DSR investing principles on top of showing one of the lowest payout ratios at 32% (considering a 2.44% dividend yield).
We can certainly expect additional sales in the upcoming years as the mining industry has been pretty down lately. The next boom will drive FTT sales higher and the company will most likely increase its dividend payout at that time. the dividend increased by a total of 61% over the past five years.
I’M CURIOUS – WHAT IS YOUR HIDDEN CANADIAN GEM?
Do you have any “less common” Canadian dividend stocks in your portfolio that performed well over the past few years? let me know!
Disclaimer: I hold shares of BDI and BDI, AGU, WSP and FTT are part of our Dividend Stocks Rock Portfolios.
Recently got a position in MTL, Mullen Group.
Because of its downward trend last yr, the yield is high now.
I think I caught it at almost its lowest point, as it has been rising recently. Fundamentals look good. Downside is that it is related to oil and gas price.
AGU dividend is paid in US dollars, which adds about ten percent value today.
Cineplex is one I’ve held for a few years and very happy with the performance.
interesting
My none widely publicized Canadian companies are: Agrium, Calian, Finning, airboss, Cervus, Canam and Chesswood.
My favourite…Computer Modelling Group (CMG):
DGR >12%
10 year streak of consecutive dividend increases
No negative years of total return performances
Strong seasonality Oct to May
ROE >40%
Current Ratio 2.96
Very low debt
High net profit margins
CMG is on my follow up list but too many yellow and red lights when first look at around $15. Better at $11 but still a P/E at 32 and a dividend payout greater than 50%. Will be a buy around 7$…
Main concern is the P/sales ratio. OpenText and Constellation are around 4 while CMG is 12…
However I will continue to keep an eye on it.
Another play in the ag space I like is Ag Growth International – they are in grain storage/handling, e.g. bins, augers, etc. What I like about it is, unlike companies like Agrium and Cervus (and Rocky Mountain Dealerships, also), whose revenues fluctuate with crop prices, AGI underlying revenue is more tied to crop volume.
Dividend yield just below 5%, after today’s acquisition of Vicwest’s grain handling business, would not be surprised to see a dividend increase in the next year.
Hello Bram,
besides the oil dropping price, is there anything else to worry about the Mullen Group?
Hemgi,
I’ve been following Calian for a while and I can’t explain why the stock price is stagnating (+4.50% in the past 5 years… not annualized, total ex dividend). Can you shed some light?
thx!
Matlock,
thx for this stock, I didn’t know about this one. You are right; it’s a safer business to handle the grain than trading/producing it!
Bernie,
I see a big jump recently (2:1), what was the motivation behind this jump?
By the way, WSP Global pulled out great results today, the stock is up almost 5% at noon.
I ran a similar screen and the top stock was one of my holdings, HWO. It’s run up over 100% since I stumbled upon it in 2012, but still has P/E < 10, a 4.3% dividend which has been raised over 20%/year for the past two years, low payout ratio, little debt, and high ROE. (The company has turned around after getting into debt troubles about 5 years ago.) A bit risky in that about half their revenue comes from operations in Papua New Guinea, but on the other hand, their expertise there could also be a moat.
I thought CMG was a bit pricy when I bought a few years ago. The share price was up over 100% at one point and the dividend has also gone up about 100%. I've been tempted to buy some more on the recent dip. They're supposed to be rolling out some new software, which should help boost earnings.
I've also been holding BDI for a few years. The price can be volatile (which can also make for some good buying opportunities), and they are good about raising the dividend at least once per year.
I also hold MTY, which has a lower dividend, but is increased over 20%/year.
DG
When Calian hit 22$ recently, I was sure that the stock was finally starting to increase significantly. Some bad result and it returned to $18.
I simply think that Calian is too small to be on the radar of financial firm and it is not part of major funds so not enough transactions.
Stock is highly rank in my evaluation system and it is right now a buy. I believe that it is a stock that can deliver a global performance of 7% a year for the next 5-10 years
Beckers Milk is one I have been in and out of. Super cheap SP compared to valuation of assets (important if they decide to do a friendly takeover), slow, steady profit growth in general, guarenteed income and decent dividend which occasionally is doubled. I’ll never become a millionaire on it, but thats fine as I always make a bit every year on it.
With the downturn in oil, I see some real opportunities emerging. Baytex has consistently increasing dividend payout, currently sitting quite high around 7% due to the stocks depressed price, but significant cash flow and manageable debt to get through the current storm.
Hemji & DivGuy,
CMG is a small cap & can trade thinly so large buys or sells can move the needle sharply. There have been a lot of insider purchases this fall which may account for some of the moves. CMG traditionally has high P/E’s & POR’s along with high ROE’s & profit margins. Their seasonality is outstanding in the early Oct to late July period. Over the past 10 years the average price increase was 60.23%. It was 46.21% over the past 5 years.
Mike. A gem of mine is Algonquin Power (AQN) based out of Oakville Ontario. They actually have the majority of growing revenues from the US and now pay their Dividend in US$. With the recent drop in CAD, this has presented me with a good uplift in payout. The stock has also risen appreciably in the last few months.
Dan,
I’ve looked at this one before but found it pricey at the time. You obviously bought it when it was cheaper…nicely done! I have about 45% of my portfolio in U.S. stocks & 5% in UK stocks so I’m also enjoying the uplift 🙂
Very nice list. I like your approach to identifying stocks and how you tweaked the formula to find new stocks. While I won’t be buying any of the stocks in this article, I will keep following your articles to see if/when this approach will identify a gem!
Keep up the great work.
Bert, one of the Dividend Diplomats
Hey Bert,
Nice to see you around :-). In the past 4 years, I’ve been able to find a few great gems (STX (now sold), AAPL (bought during the drop), INTC (now sold), DIS (bought about a year ago). My trade with HP (NYSE:HP) is hurting right now due to the low price of oil, this is why I’m buygin BDI now 🙂
cheers,
Mike
Hey Dan,
this is a great way to see your dividend increase without doing nothing! good job!
This is the reason why about 65% of my portfolio is now in US stocks (better diversification, stronger economy and stronger dollar!).