(John Lehmann/Globe and Mail/CP)
Getting paid to wait is a favourite catchphrase of dividend investors, but no one said the wait had to be a long one. Anyone who invested in AirBoss of America Corp. after it appeared on our dividend screen a year ago would have happily discovered that. If you bought into the Newmarket, Ont., defence contractor at that time, you would have more than doubled your money.
For that matter, half of the companies that popped up on our dividend list last year posted double-digit gains. That powered our top 10 picks to an average total return of 21.3%, matching the previous year’s performance while handily beating the S&P/TSX composite. What makes this return even more impressive is that half of the 2014 picks only had modest dividend yields, below 4%. This year, just two of the 10 dividend companies we list here have yields that low, which should reinforce the notion that there is more to picking dividend stocks than seeking out the company with the highest yield.
For this screen, we start by looking for stocks with a dividend yield north of 2.5%. Next, we single out companies that have a history of growing their dividend over the past five years. We require that growth to surpass 5% over that period. Finally, we knock out companies with a payout ratio above 60%; anything higher than that level and savvy investors begin to question whether a company can reasonably maintain its payout without hindering growth.
Two of the best performers from last year’s list had payout ratios of 56%. Torstar Corp. comes closest to matching those higher ratios, but chances are it’s the company’s yield—7.4%, and no, that’s not a misprint—that is catching your eye in the table below. The high yield is a symptom of the sell-off of Torstar’s shares while the company maintained its dividend in dollar terms.
Contrast Torstar with Acadian Timber. The Vancouver-based forest company sports a robust 4.8% yield even though its shares have risen more than 50% over the past year. At the same time, the company has increased its dividend by 33% over the past five years, yet its payout ratio is a paltry 9%. The low payout suggests Acadian has room to continue increasing its quarterly stipend to shareholders.
It shouldn’t come as a surprise that several bank stocks find their way onto this list. Given their overall size and the regulatory constraints they face, they are unlikely to match the outsize returns of an AirBoss. But then, dividend investors can be a patient bunch when they have to be.
The top 10 dividend stocks
| Company | Ticker | Dividend yield (%) | Dividend payout ratio (%) | 5-year dividend growth rate (%) | Beta | Price- to- book |
|---|---|---|---|---|---|---|
| Acadian Timber Corp. | ADN | 4.8 | 9 | 33.4 | 0.6 | 1.2 |
| Bank of Nova Scotia | BNS | 4.1 | 48.6 | 6.1 | 1 | 1.7 |
| Emera Inc. | EMA | 3.9 | 37 | 7.3 | 0.6 | 2.2 |
| H&R REIT | HR.UN | 5.8 | 50.5 | 13.4 | 0.7 | 1 |
| Laurentian Bank | LB | 4.5 | 46.7 | 8.7 | 0.9 | 1 |
| Plaza Retail REIT | PLZ.UN | 5.6 | 37 | 5.2 | 0.6 | 1 |
| Richards Packaging Income Fund | RPI.UN | 5.6 | 28.7 | 14 | 0.4 | 2 |
| Rocky Mountain Dealerships Inc. | RME | 5 | 35.9 | 20.6 | 0.7 | 1.1 |
| Royal Bank of Canada | RY | 3.8 | 45.2 | 8.3 | 0.9 | 2.3 |
| Torstar Corp. | TS.B | 7.4 | 51.2 | 7.2 | 1 | 0.7 |
