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What we are looking for?

Reasonably priced, large Canadian dividend-paying companies.

The screen

Recently, we've received calls from clients concerned that the TSX may be due for a correction. Much of the gains on the S&P/TSX composite index this year have come from an expansion of the price-to-earnings ratio (P/E), which, according to Bloomberg, now sits at 23.2 on a trailing basis versus its five-year average of 18.8. Not wanting to "time the market," our response is to hold companies with lower P/Es and reasonable growth expectations. Additionally, we've included the following screens:

  • Minimum market capitalization of $1-billion;
  • Minimum dividend yield of 1 per cent;
  • Five-year annualized dividend growth of at least 3 per cent;
  • Annual positive cash flow momentum (percentage change over previous year) of at least 5 per cent;
  • Trailing return on equity (ROE) of at least 5 per cent;
  • Trailing P/E less than 12;
  • Change in median target price from six months ago of at least plus 5 per cent;
  • Consensus 12-month target price return of at least 7.5 per cent;
  • Payout on trailing dividends to trailing cash flow not more than 65 per cent, or payout on current year dividends not more than 80 per cent of current year EPS;
  • No expectation of dividend cut, based on Street consensus estimates.

More about the Wyndham Group

The Wyndham Group of Raymond James provides financial planning and wealth management services to professionals, business owners and their families. Client portfolios are managed on a discretionary basis.

What we found

Our screening process found seven companies with a trailing P/E lower than 12. While this may give rise to questions regarding growth, analysts covering these companies are expecting an average return of 10.85 per cent for the group.

In addition, the group is expected to deliver an average dividend yield of 5.09 per cent and an average dividend growth of 2.98 per cent. As always, investors are encouraged to speak with their financial adviser before investing in any of the investments discussed here.

Rob Pollard, CIM, FCSI, is the portfolio manager of  the Wyndham Group at Raymond James Ltd.

TSX stocks showing dividend growth, cash flow momentum