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Retirement 100 (Fall 2015)

Pumpkin season is upon us. The squash is being squeezed into morning lattes and put into Thanksgiving pies. Eventually its flesh will be mercilessly carved up for the pleasure of the sugar-starved monsters who roam the streets on Halloween. It's a frightening time to be a pumpkin.

It's also a scary one for investors who've been spooked by the market's wild gyrations and are wondering which way it'll go next. Resource stocks have fallen precipitously and more than a few blue-chip companies have followed them down.

This year's MoneySense Retirement 100 will help guide you through the graveyard of energy stocks, past haunted mining firms, and to the best income stocks Canada has to offer. In it we grade the largest dividendpayers in the land and provide a wealth of facts and figures on each one.

We're pleased to say that our efforts have been highly rewarding since we started way back in 2007. Our A-graded stocks have gained 117% on average since then, including dividends reinvested annually. Similarly, the A- and B-graded stocks have climbed 67%. By way of comparison, the S&P/TSX Composite Index ETF (XIC), which tracks the broad Canadian stock market, logged a return of 25% over the same period and the dividend-oriented iShares Canadian Select Dividend ETF (XDV) advanced 35%.

But you should know that the long-term results came with more than a few ups and downs along the way. For instance, last year saw the A-graded stocks fall by an average of 10%. The A and B stocks slipped by an average of 12%. Similarly, the broad Canadian stock market was weak with the S&P/ TSX Composite ETF (XIC) down 10% and the Canadian Select Dividend ETF (XDV) tumbling 15%. Hopefully investors will see better returns over the next 12 months.

The Grades

We grade each of Canada's largest dividend stocks based on its ability to provide generous income to investors for a reasonable price. While the process might sound complicated, we boil everything down to an easy-to-use letter grade that sums up a stock's investment potential.

Firms with the best prospects are awarded As and solid candidates get Bs. We think both are worthy of your consideration. Middle of the road firms get Cs while those in need of improvement get Ds or even Fs. We believe the Retirement 100 offers a logical and consistent approach to selecting dividend stocks that isn't influenced by feelings or fads. We don't rely on our gut instincts or happy visions of the future when evaluating firms. Instead, our results are based entirely upon the numbers.

We start by mining facts and figures from the Bloomberg database and focus on the largest firms in Canada based on market capitalization. (Market capitalization is the market value of a company and is calculated by multiplying its stock price by the number of shares it has.) We then remove firms that have been around for less than a year and those lacking the sort of detailed financial information we need for our analysis. The grades are awarded based on yield, reliability and value.


We think investors should be paid to take on the risk of stock ownership and give top marks to firms with generous dividend yields. We also reward businesses that have grown their dividends over the last five years because dividend growth is an indicator of financial strength.


We want some assurance that a company's dividend is sustainable. (Indeed, sometimes an extraordinarily high yield can be a warning sign so we run multiple tests.) We first reward stocks that earn more than they pay out in dividends. We also give additional marks to those with little debt compared to their peers. After all, companies staggering under heavy debt loads have a habit of folding during hard times.


On the value front we want to buy lots of assets for a low price. As a result, better grades go to companies with moderate-to-low priceto- book-value (P/B) ratios. This number compares the market value of a company to how much cash you could theoretically raise by selling off the company's assets (at their balance-sheet values) and paying off its debts. Reasonable P/B ratios provide some assurance that you're not paying much more for a stock than its parts are worth. Similarly, we also like profitable stocks with modest price-to-earnings ratios.

Putting all these factors together we arrive at the final grades for the largest 100 dividend stocks in Canada. This year only seven of them earned an A while 14 picked up solid Bs.

The Leaders

The three big banks at the top of the class are the Bank of Nova Scotia (BNS), the Bank of Montreal (BMO), and TD Bank (TD). The first two offer yields of 4.7% while TD pays 3.9% and has a good dividend growth record.

They're joined by insurance firms Great- West Lifeco (GWO) and Sun Life Financial (SLF), which provide yields of 4.0% and 3.7%, respectively. In addition, Genworth MI Canada (MIC) makes the grade and pays a hefty dividend yield of 5.1%. It's a mortgage insurance firm that trades at only 7 times earnings and 84% of book value due to worries about excesses in the Canadian real estate market.

Financial conglomerate Power Corporation of Canada (POW) rounds out the A listers. The firm is a relative bargain at 8 times earnings and owns stakes in highlyrated Great-West Lifeco, IGM Financial, and Power Financial.

The B Team

Just a step behind, the B list starts with CIBC (CM) and National Bank of Canada (NA), which yield 4.7% and 4.9%, respectively. You'll have a hard time getting a higher yield from a Canadian savings account. They're joined by insurance firms Industrial Alliance Insurance (IAG), Manulife Financial (MFC), and Power Financial (PWF). Asset manager IGM Financial (IGM) and stock-exchange manager TMX Group (X) round out the financials.

Conglomerates ATCO (ACO.X) and Brookfield Asset Management (BAM.A) are also part of the B team with the former favouring the energy sector and the latter real estate. They're joined by property manager First Capital Realty (FCR), Finning International (FTT), the largest Caterpillar dealer in the world, and fertilizer producer Potash Corporation of Saskatchewan (POT). Engineering firm SNC-Lavalin (SNC) and Alberta oil producer Whitecap Resources (WCP) are its final members.

Use our grades as the starting point for your own research. Before buying any stock, make sure its situation hasn't changed in an important way and that it's right for your portfolio. While we're pleased with our longterm track record, that doesn't mean we can guarantee you'll make a fortune with every A- or B-rated stock. Nonetheless, we do think such stocks deserve your attention and further research. With a little luck, the current crop of stocks will help pay for a patch of pumpkin lattes next year.

Retirement All-Stars
A Grade Stocks
Bank of Montreal (BMO)
Bank of Nova Scotia (BNS)
Genworth MI Canada (MIC)
Great-West Lifeco (GWO)
Power Corp of Canada (POW)
Sun Life Financial (SLF)
Toronto-Dominion Bank (TD)
B Grade Stocks
Brookfield Asset Management (BAM.A)
Finning International (FTT)
First Capital Realty (FCR)
IGM Financial (IGM)
Industrial Alliance Insurance (IAG)
Manulife Financial (MFC)
National Bank of Canada (NA)
Potash Corp of Saskatchewan (POT)
Power Financial (PWF)
SNC-Lavalin Group (SNC)
TMX Group (X)
Whitecap Resources (WCP)
As of September 3, 2015

Download the Retirement 100 table (a .xls file)

First published in the November 2015 edition of MoneySense magazine.

Past Retirement 100 / Income 100 / Top Trusts Articles

    Retirement 100: Fall 2014
    Retirement 100: Fall 2013
    Retirement 100: Fall 2012
    Retirement 100: Fall 2011
    Retirement 100: Fall 2010
    Income 100: Summer 2009
    Income 100: Summer 2008
    Income 100: Summer 2007
    Top Trusts 2006
    Top Trusts 2005

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 Dividends 100 2016
 Retirement 100 2015
 Retirement 100 2014
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 Income 100 2007
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 Top Trusts 2005
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 Investing by the book
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