Skip to main content
number cruncher

What are we looking for?

North American companies that have consistently grown their dividend, have a reasonable valuation and strong free cash flow.

The screen

Today, we look for large-cap North American securities that have a record of increasing dividends, are relatively undervalued in the market and have generated the kind of free cash flows that suggest they are making smart investments in their business.

Our screen is based on the following criteria:

  • Dividends: We screened for companies that have a current dividend yield equal to or greater than their previous five-year average;
  • Valuation: Companies had to have a price-to-earnings ratio that was less than that of the current S&P 500 (24.82) or, for Canadian-listed firms, the S&P/TSX composite index (16.22);
  • Cash flow: Companies had to have a free cash flow (FCF) yield greater than 10 per cent (FCF yield provides an indication of the operating strength by comparing the free cash flows with market capitalization).

We also looked at how the current price compares with the average broker target price; if the company's share price is lower than the average broker target, we can assume the company is undervalued.

More about Thomson Reuters

Thomson Reuters delivers trusted news and intelligent information to more than one billion people in 140 countries every day. Our content, software and technology support the way professionals work in a rapidly changing, ever more complex world. Thomson Reuters Eikon is the platform used by financial and corporate clients to access top research, portfolio analytics, charting and screening for every asset class.

What did we find?

Only six securities surfaced that met all of the criteria required by our screen. The stocks are ranked according their implied return to the average broker-target price (percentage above the current price). The larger the distance to the average broker-target price, the better.

Power Financial Corp., the Canadian-based diversified management and holding company, had the highest implied return to average broker target of 12.3 per cent. The company has been consistently increasing its dividend over the past five years (currently yielding 4.7 per cent), its FCF yield is the third-highest in the bunch at 24.87 and, at 11.63, its P/E ratio is well below that of the S&P/TSX.

Ford Motor Co. scored second-highest in terms of implied return to average broker target at 12.1 per cent. The global automotive company has been increasing its dividend consistently (currently yielding 5.8 per cent), its FCF yield is strong at 25.01 and its P/E ratio is far below that of the S&P 500, at 5.86.

Investors are encouraged to do their own research before investing in any stocks listed here.

Paul Hoyda, CFA, is a market specialist in the financial and risk division of Thomson Reuters and specializes in governance, risk and compliance.

Select dividend stocks with strong free cash flow

CompanyTickerMarket Cap ($Mil U.S.)5Y Avg. Div. YieldDividend YieldFCF YieldP/EAvg. Broker TargetRecent Price ($U.S.)Implied Rtrn to Avg. Broker Target
Power Financial Corp.PWF-T19,831.74.5%4.7%24.8711.6331.2127.7812.3%
Ford Motor Co.F-N44,172.04.0%5.8%25.015.8612.4711.1212.1%
Great-West Lifeco Inc.GWO-T27,956.14.0%4.1%16.1114.1930.4828.277.8%
Annaly Capital Management Inc.NLY-N12,175.211.3%11.4%86.474.1911.2910.507.5%
Gilead Sciences Inc.GILD-Q103,194.32.3%2.3%10.1510.1186.8888.80-2.2%
Target Corp.TGT-N41,746.43.2%3.2%11.1016.1273.6376.80-4.1%

Thomson Reuters Eikon