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A dash of growth for the cautious investor

What are we looking for?

A portfolio that would appeal to a conservative investor looking for income along with a dash of growth.

More specifically, we went hunting for Canadian stocks with stable earnings and dividend prospects.

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More on today's screen

Craig McGee, senior consultant at CPMS, a division of Morningstar Canada, constructed the screen.

To pass, stocks must have had a market cap of at least $1-billion and a dividend yield of at least 2 per cent.

Each stock also had to meet several additional criteria:

– the dividend payout ratio must not have exceeded 80 per cent of the 12-month earnings estimate;

– dividend growth must have been positive over the previous year;

– total annualized dividend growth could not have been negative over the past five years;

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– the five-year earnings growth rate must have exceeded the median of the 730 Canadian companies that CPMS tracks;

– the expected price return on the stocks must have been higher than 5 per cent based on the median of analyst price targets.

The 14-stock list is sorted by expected yield.

More about CPMS

CPMS provides quantitative North American equity research and portfolio analysis to primarily institutional clients.

It covers more than 700 Canadian and 2,200 U.S. stocks, and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.

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What did we find?

A short list with many of the usual suspects (Bank of Nova Scotia, Toronto-Dominion Bank, Rogers Communications ) on it, but also three of Canada's smaller banks (National, Laurentian and Canadian Western ) as well as utilities, a retailer and a publisher.

Focusing on firms with a solid record of earnings and dividend growth, with payouts that are well supported by earnings, has historically given an investor a good chance of enjoying both a steady stream of income as well as gains in share price. But situations can change quickly and readers should do their own research before putting down their money.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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