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What are we looking for?

The best dividend stocks in the country.

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We're spending the week looking at the dividend growth research by George Vasic. Every year, the UBS Securities Canada Inc. strategist does a series of reports on dividend growth stocks. For the next two days we'll look at the best true yield stocks.

What is a true yield?

As Mr. Vasic said, companies can return money to shareholders in two ways: either dividends or stock buybacks. True yield measures both. It measures dividend yield together with share shrinkage - shares that companies buy back that lower the overall share count. True yield equals dividend yield less the three-year compound annual growth rate of the shares outstanding.

"We see true yield as a complement, not a substitute, for the dividend yield," Mr. Vasic said. "Dividends and share repurchases are not the same; the former represents cash in hand, are highly visible and can't be suspended or changed without direct consequence to the share price. And while share count is a better measure than buybacks for the reasons too, it too can be muddied by acquisitions (whether good or bad) or issuance to strengthen the balance sheet."

The best true yield stocks

Mr. Vasic looked across the S&P/TSX composite excluding trusts and screened for stocks with a dividend yield greater than 1.5 per cent, a true yield of more than 3 per cent, no increase in share count over the past three years, annualized dividend increases of more than 10 per cent over the past five years, and a payout ratio of less than 50 per cent.

The six stocks that passed the test in the accompanying table rose 28.9 per cent past year, versus 8.6 per cent for the S&P/TSX composite.

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About the Author
Executive Editor, Report on Business

Scott Adams is the executive editor for Report On Business and Globe Investor. He was previously the managing editor of Globe Investor. He has been a business journalist for more than 10 years, worked as an associate analyst on Bay Street and has been with The Globe and Mail since 2007. More

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