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What are we looking for?

Attractively valued Canadian securities, generating strong free cash flows to sustain dividend growth, while retaining the ability to invest in their core business.

The screen

We screen for companies providing a sustainable and consistent income stream, with the potential to grow dividends, while maintaining the versatility needed to invest in their business through production expansion, developing new products, or reducing debt. Our goal is not necessarily to find stocks paying attractive yields, but ones capable of growing their dividend while maintaining their payout rate.

Our screen is based on the following criteria:

  • Free-cash-flow yield greater than dividend yield (operating cash flows after accounting for capital expenditures are greater than the amount needed to sustain current dividends);
  • A dividend payout ratio (annual dividends paid relative to net income) less than or equal to 35 per cent – this being the median for stocks with a payout ratio of less than 100 per cent on a trailing 12-month basis;
  • A trading price less than the average broker target price;
  • A price-earnings-to-growth (PEG) multiple equal to or less than that of the S&P/TSX composite index, which stands at 2.04. (PEG is P/E divided by the expected earnings growth rate over the next 12 months.)

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?

The screen highlights the top 10 companies that match our criteria, ranked by market cap, with Canadian National Railway, Canadian Pacific Railway and Magna International leading the pack.

This commentary does not provide individualized advice or recommendations for any specific subscriber or portfolio. Investors should conduct further research before investing.

Khaled Eniba works in the financial and risk unit of Thomson Reuters and specializes in banking and research.

Companies generating a sustainable and consistent income stream

CompanyTickerMarket Cap. ($ Mil.)FCF YieldDividend YieldDiv. Payout RatioPEG RatioRecent Price ($)Price Target, Mean ($)
Canadian National Railway Co.CNR-T76,620.93.3%1.6%32%1.90101.63105.10
Canadian Pacific Railway Ltd.CP-T29,266.33.1%1.1%18%1.29199.69225.58
Magna International Inc.MG-T22,137.29.6%2.5%19%0.7359.3365.82
Teck Resources Ltd.TECK.B-T14,220.911.5%0.8%4%1.3624.6134.25
Canadian Tire Corp. Ltd.CTC.A-T10,287.92.0%1.8%25%1.22143.90177.67
Metro Inc.MRU-T9,751.14.0%1.5%28%1.4942.7349.73
Gildan Activewear Inc.GIL-T8,676.66.2%1.3%21%1.2237.7839.47
Quebecor Inc.QBR.B-T5,309.15.0%0.5%19%1.4843.9247.96
Linamar Corp.LNR-T4,621.712.0%0.7%5%1.2370.8073.93
Maple Leaf Foods Inc.MFI-T4,215.75.8%1.4%30%1.7132.5936.75

Source: Thomson Reuters Eikon