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Dividends plus buybacks: A tantalizing combo

What are we looking for?

Dividend stocks with an extra sweetener of share buybacks.

More on today's screen

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Companies can choose at least two ways to reward investors. One is by increasing dividends (which puts money directly into shareholders' pockets); another is by buying back shares (which benefits shareholders indirectly by reducing the number of shares outstanding, thus spreading future profits among a smaller group of investors).

There's evidence that companies that buy back shares on a regular basis do better than the broad market. There's also evidence that companies that grow their dividends do better than those that don't. Companies that do both would therefore seem well positioned for further gains.

How we did it

Allan Meyer and Sean Pugliese at Wickham Investment Counsel in Hamilton used Morningstar CPMS to screen their database of more than 700 firms for TSX-listed companies that have done a share buyback over the last year, and also increased their dividends.

What we learned

MacDonald Dettwiler was the winner in the share buyback category, shrinking its number of shares by 22.6 per cent over the past year. The company also announced a dividend increase of 30 per cent (from $1 to $1.30) for a dividend yield of 2.9 per cent.

Other firms that have done share buybacks and sport yields of more than 4 per cent are Nordion, Rogers Communications and GMP Capital. It is interesting to note that the payout ratio for all of the securities listed is below 50 per cent, indicating that they are in a good position to raise dividends.

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You should, of course, do your own research before buying any stock. But if you're searching for firms that are rewarding their investors in multiple ways, this list is a good place to start your hunt.

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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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