Skip to main content
number cruncher

What are we looking for?

Companies that pay high dividends and are neither in the traditional oil, gas, power and pipeline industries, nor are real-estate-investment trusts.

More on today's screen

Trevor Johnson at National Bank Financial constructed the screen by analyzing more than 220 TSX-listed stocks and scoring the 44 with the highest dividend yields as +1, 0, or -1, according to three investment criteria. The criteria were:

yield to payout - high score for stocks with the highest yields relative to expected payout ratios, because they have the biggest potential to boost their dividends and are at the least risk of having to cut it;

relative valuation - high score for stocks with low forward EV/EBITDA (enterprise value to earnings before interest, taxes, depreciation and amortization) and low price-to-cash flow ratios relative to peers, historical valuations and the outlook. This score also factors in the particularities of the company and industry;

financial health - high score for stocks with low leverage, sustainable payout ratios and the capacity to grow.

What we learned

One of the challenges in analyzing high-yield diversified stocks is that the companies operate across a wide range of industries, with different operating and financial characteristics, Mr. Johnson said in a report.

Investors can rank the companies based on how they score according to the three selection criteria. A high or low score doesn't necessarily signal a buy or a sell, but "it is a good starting point," Mr. Johnson said.

Even though there are only limited prospects for the whole group of shares in high-yield diversified companies to rise, there are some compelling picks "for investors to find enhanced income opportunities," he said.

Interact with The Globe