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The Globe's Dividend All-Stars 2024

We're pleased to present the Globe's Dividend All-Stars, which highlights the best dividend-paying stocks on the Toronto Stock Exchange (TSX). It includes a wealth of information on the 200 largest companies in the land for bargain seekers and income investors alike. Each stock is measured up for its overall investment appeal and the top 20 five-star stocks make it into the Dividend All-Stars portfolio.

Dividend stocks have a special place in the Canadian stock market and are beloved by risk-averse investors. It's easy to see why because, as a group, they've provided outsized returns and avoided the worst of some of the biggest market crashes since the turn of the century.

A simple dividend portfolio composed of the largest 200 stocks on the TSX would have gained an average of 11 per cent annually since the end of 1999 to the end of January, 2024 when rebalanced monthly. In comparison, the Canadian market gained an average of 6.6 per cent annually over the same period based on the gains of the S&P/TSX Composite Index. (The returns herein reflect monthly data from Bloomberg and include dividend reinvestment, but not fund fees, commissions or other trading costs. The portfolios are equally weighted and rebalanced monthly unless specified otherwise.)

Dividend investors had the good fortune of dodging the Internet bubble's burst, which started when the market index peaked in August, 2000, only to dive 43 per cent by the end of September, 2002. At the same time, the simple dividend portfolio mentioned above gained 28 per cent. The results weren't nearly as good in the financial crisis of 2008-09 when the market index fell 43 per cent from its former highs and the simple dividend portfolio declined 41 per cent before hitting its lows.

While buying dividend stocks isn't a surefire prophylactic against market downturns, they can help investors through frightening times that prompt others to sell rashly when prices are low. Investors who track dividend yields will notice they rise as stock prices fall. The higher yields should encourage them to load up on good stocks or stay invested during downturns when bargains are plentiful. At least, that's the theory.

Digging for dividends

We like dividend stocks but know they aren't all sure-fire winners. That's why we dig deeper and grade each stock in three primary ways. We start with its yield, move on to its value characteristics, and then check the market for signs of trouble. Overall, the idea is to look for stocks with good yields that trade at bargain levels and are in stable or improving trends.

It is important to point out that our rantings are based entirely on the numbers and each stock's star rating does not reflect the character of the company, its management or employees. Simply put, our personal opinions or intuitions about a company don't factor into it. For instance, it's possible for a good business to get a low number of stars when it trades at a very high price relative to its fundamentals or its stock is languishing in a downtrend.

But we believe our dividend star-system provides an objective numbers-based take on the largest 200 dividend-paying common stocks on the TSX with at least 12 months of trading history. Mind you, we try to skip over companies that are in the process of being taken over because such situations are better addressed by merger specialists.

We hope you'll enjoy the Dividend All-Stars. You can learn more about how we rank each stock below along with details on the select group of 20 stocks in the Dividend All-Stars portfolio.

A Tale of two yields

We start our analysis of each stock by considering its dividend yield and give extra marks to companies with generous dividend yields. After all, income investors like to see copious amounts of cash flowing regularly into their accounts.

But companies can also send money to their shareholders by buying back their own shares. That's why we also factor in a stock's buyback yield, which is measured by the percentage change in a company's share count over the past four quarters. The idea is to track the outcome of share repurchase programs rather than just the amount of money spent on them. After all, buyback programs that only repurchase shares that were previously doled out to executives should be counted as corporate expenses rather than dividends in a different form.

Double value

When seeking bargain stocks, we take our cue from value investors who are bargain hunters at heart and like to buy lots of corporate value for low prices.

Our value search starts with the venerable price-to-earnings ratio (P/E), which has worked well over the decades in many markets around the world. Here we want to buy lots of earnings power for a low price and therefore award more stars to stocks with low P/Es.

Similarly, we're keen on alternate measures of value and seek prodigious cash flows from operations from our companies at reasonable prices. That's why stocks with low price-to-cash-flow ratios (P/CF) get more stars than their peers.

Seeking stability

While we love bargain dividend stocks, they aren't without risk. After all, a company that recently suffered from a calamity might trade at an unusually high yield or at a very low P/E. Nonetheless, the outlook for its business might be dire and a dividend reduction could be in the offing. That's why we employ two market measures in an effort to avoid problem cases.

We begin by rewarding stocks on the upswing with high total returns over the past six months, relative to their peers. The hope is to avoid stocks the market has soured on, which might have problems that have yet to be reflected in their financial reports.

Similarly, we reward relatively placid stocks with low volatilities over the prior 260 days in an effort to weed out companies with highly variable businesses and instead favour steady performers that haven't startled investors in recent times.

The Dividend All-Stars

We combine all of our yield, value, and market measures to rate the 200 largest dividend stocks on the TSX. Only 20 get a full five out of five stars and are put into the new Dividend All-Stars portfolio.

The stocks in the current portfolio have median (half the readings are higher and half are lower) dividend yields of 5.4 per cent, median earnings yields of 10.2 per cent, and median cash flow yields of 20.1 per cent. The portfolio's stocks have climbed by an average of 10.2 per cent over the past six months.

We did our homework by back-testing the star system and it passed with flying colours. The 20-stock Dividend All-Stars portfolio gained an average of 15.7 per cent annually from the end of 1999 to the end of January, 2024, when an equal-dollar amount of money was put into each stock and the portfolio rebalanced monthly. By way of comparison, the market index climbed by an average of 6.6 per cent annually over the same period.

Despite the high returns, the Dividend All-Stars portfolio was a touch less volatile than the market index. The portfolio also fared well in the market crash of the early 2000s when it climbed 78 per cent while the market index fell 43 per cent from its high in 2000 to its low in 2002. The portfolio held up better in the 2008-09 financial crisis with a decline of 34 per cent compared with the market's 43-per-cent plunge. But it trailed in the 2020 crash when the portfolio gave up 35 per cent while the market dropped 22 per cent. Alas, it doesn't win all of the time.

For those who like to trade less frequently, the Dividend All-Stars portfolio gained an average of 14.2 per cent annually from the end of 1999 to the end of 2023 when rebalanced annually. The market index climbed by an average of 6.6 per cent annually over the same period.

Here be dragons

The Dividend All-Stars, and our star ratings, represent great starting points for further investigation but you should improve your knowledge of each company by investigating it, and its industry, in detail before investing.

Be aware of the limitations of quantitative techniques such as ours, because other considerations can make an impact when investing. For instance, the abilities and character of a company's people can sometimes help or hinder a business.

Be aware of events from the political and global to the local because they can depress the market and damage industries and individual companies. Alas, investing is risky and avoiding the vicissitudes of fate while still earning a decent return is highly improbable.

We think the Dividend All-Stars have the ingredients necessary for success, but fully expect the results to be bumpy, individual stocks will inevitability disappoint, and the market will crash from time to time. Investors would be wise to move into the market with modest expectations. We would be pleased indeed to outperform the market index by an average of a few percentage points a year over the next couple of decades. (For the sake of disclosure, the author owns many of the stocks mentioned herein.)

As a special warning, watch your step when dealing with stocks that trade infrequently, and those with very low share prices, because they may be difficult to trade in a timely and cost-effective way.

But enjoy looking up the data that is the most meaningful to you. After all, the purpose of our star system is to help you focus on a few good dividend payers you might want to add to your portfolio.

The Dividend All-Stars
These 20 stocks offer the best combination of income, value, and stability.

ATCO is a sprawling utility-heavy conglomerate with global operations that makes its home in Calgary. It increased its dividend-per-share in each of the past 30 years and added to the record with a recent 3-per-cent boost. The company offers a 5.3-per-cent dividend yield and a 10.6-per-cent trailing earnings yield. As it happens, ATCO owns a majority stake in Canadian Utilities (CU), which is also a member of the All-Star team this year.

Canadian Utilities is in the utility, energy infrastructure, and retail energy business. The company is a subsidiary of ATCO (see above) and is based in Calgary. It highlights its 52-year track record of annual dividend-per-share growth that continued recently with a modest 1-per-cent boost. Canadian Utilities pays a 6-per-cent dividend yield and sports a 10-per-cent trailing earnings yield.

Capital Power produces power from 32 operating facilities across North America. The Edmonton-based company offers shareholders a 6.7 per cent dividend yield and expects to increase its dividend-per-share by 6 per cent in both 2024 and 2025. It has a forward earnings yield of 8.7 per cent based on 12-month earnings estimates.

CES Energy Solutions makes its home in Calgary and provides consumable chemicals to the oil patch. The company happens to be the second smallest member of the team this year with a market capitalization near $980-million. It trades at eight times trailing earnings, pays a dividend yield of 2.4 per cent, and cut its share count by 5.8 per cent over the past four quarters.

CIBC is the fifth largest bank in Canada based on its $57-billion market capitalization, and the third largest Dividend All-Star this year. The Toronto-based company has a 10-per-cent return on equity, trades near 1.2 times book value, and nine times 12-month earnings estimates. It pays a 5.9-per-cent dividend yield and boosted its dividend-per-share by 5.9 per cent over the past year.

Great-West Lifeco is a Winnipeg-based life and health insurer with investment services, asset management, and reinsurance businesses. It pays a 5.4-per-cent dividend yield and recently boosted its dividend-per-share by 6.7 per cent. Great-West Lifeco is a subsidiary of Power Corp (POW), which is also a Dividend All-Star.

IA Financial is an insurance and wealth management firm based in Quebec City with operations in Canada and the United States. Its stock trades near 10 times earnings and it pays a 3.3-per-cent dividend yield. The company has a nice habit of boosting its quarterly dividend, which climbed by 13.3 per cent over the past year.

Keyera is a natural gas processing, transportation, storage, and marketing company with assets in Alberta and Oklahoma serving customers in Canada and the United States. The Calgary-based company moved from paying its dividend monthly to quarterly in 2023 and recently increased its annualized dividend-per-share by 4.2 per cent. It offers a dividend yield of 6.1 per cent, which is covered by its 7 per cent trailing earnings yield.

Manulife Financial provides insurance and wealth management to individuals and institutions, primarily in Asia, Canada, and the United States. The Toronto-based company is the largest stock in the team this year based on its market capitalization of $60-billion. Manulife pays a 4.8-per-cent dividend yield and cut its share count by 3.2 per cent over the last four quarters.

Mullen Group is a trucking and logistics provider headquartered in Okotoks, Alta., that operates across the U.S. and Canada. Mullen pays a 4.9-per-cent dividend yield, in monthly instalments, and trades near 10 times trailing and forward 12-month earnings.

Parex Resources is an independent oil and gas exploration and production company that operates in Colombia and is headquartered in Calgary. Parex pays a dividend yield of 7.2 per cent and trades near three times trailing earnings and four times forward 12-month earnings estimates.

Pembina Pipeline is an energy transportation and midstream services company based in Calgary that operates primarily in Western Canada. Pembina moved from monthly to quarterly dividend payments in 2023 and increased its annualized dividend-per-share by 2.3 per cent over the past 12 months. It currently pays a dividend yield of 5.8 per cent and has a forward earnings yield of 6.7 per cent, based on 12-month earnings estimates.

Peyto Exploration is a Calgary-based oil and gas exploration and production company. It pays a monthly dividend and offers an outsized dividend yield of 10.1 per cent. While Peyto's dividend has varied (both up and down) over the years as its results have varied, it currently has a hefty forward earnings yield of 14.7 per cent based on 12-month earnings estimates.

Power is a large financial conglomerate based in Montreal. It owns a 68-per-cent stake in Great-West Lifeco (GWO) and 62 per cent of IGM Financial (IGM), which also appear herein. Power trades near 0.8 times its adjusted net asset value, which includes the quarter-end market value of its publicly-traded subsidiaries. The company boosted its dividend-per-share by 6.1 per cent over the past year and sports a 5.5-per-cent dividend yield.

Russel Metals is a North American metals distribution and processing company based in Mississauga. The company grew its dividend-per-share by 5.3 per cent over the past 12 months and pays a 3.4-per-cent dividend yield, which is well covered by its 9.2 per cent trailing earnings yield.

Sagicor Financial is a life and health insurance company with its headquarters in Barbados. It offers a 4.9 per cent dividend yield (paid in U.S. dollars) and trades near seven times expected 12-month earnings. Sagicor's thinly-traded stock is near its 52-week high, which pushed its market capitalization up to $886-million, making it the smallest Dividend All-Star this year.

Sun Life Financial is a financial services company that provides life and health insurance and asset management. The company makes its home in Toronto and grew its dividend-per-share by 8.3 per cent over the past year. It pays a 4.3-per-cent dividend yield and trades near 11 times forward 12-month earnings estimates.

Suncor Energy is a large integrated oil and gas company based in Calgary with operations primarily in the U.S. and Canada. It is the second largest member of the team this year with a market capitalization near $58-billion. Suncor boosted its dividend-per-share by 4.8 per cent over the past year and it offers a dividend yield of 4.9 per cent. It also cut its share count by 4.1 per cent over the last four quarters and trades near 10 times forward 12-month earnings estimates.

Transcontinental is a printing and packaging company that makes its home in Montreal with operations primarily in the U.S., Canada, and Latin America. The company pays a 6.6-per-cent dividend yield while trading near 0.6 times book value and seven times forward 12-month earnings estimates.

Whitecap Resources is an oil and gas company that makes its home in Calgary. The company pays an 8.3 per cent dividend yield, in monthly instalments. Its earnings currently cover its dividend because it has a 10.4 per cent trailing earnings yield and a 15.5-per-cent forward earnings yield based on 12-month earnings estimates.

Spreadsheet: The 200 Dividend Star Rankings [.xls]

First published in the Globe and Mail, February 24, 2024.

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