Year after year, I study both the Canadian and American stock markets to find the best dividend growth stocks. For the past 4 years, I have noticed something sad; the choice for high quality dividend growth Canadian stocks is very narrow.
Just for fun, I pulled out results using the following screener:
dividend yield over 3%
dividend payout ratio under 80%
5 year dividend growth positive
5 year revenue growth positive
5 year EPS growth positive
as you can see, I wasn’t very picky and simply started with an “acceptable” level of fundamental information. Basically, all I’m asking is to find stocks that show positive revenue, profit and dividend growth. In other words; companies that make money and have a strong potential to continue to to so.
How many stocks do you think this filter showed? 21!
What is even worse, is that you always get the same old picks: financials (7), energy (3) and telecom (3) and REITs (7) and one techno (Calian technologies). Sometimes, readers tell me I’m taking stocks with small dividend yield… did you know that there are only 365 stocks with a dividend yield over 3% in Canada? and I that’s without adding any other filters!
After this quick filter, I started to go a little deeper as I wanted to write about stocks that are somewhat unknown to the common investor. This wasn’t an easy task! But here are a few picks that don’t show perfect fundamentals but still follow my 7 DSR INVESTING PRINCIPLES.
BLACK DIAMOND GROUP (BDI)
I thought it was interesting to come back with this pick as it did very well in 2012 but is currently taking a real beating. BDI’s stock price is dropping like there is no tomorrow mainly because the oil barrel is dropping like a stone. They provide modular buildings mainly used in Northern Alberta where there are several drilling and oil exploration activities. In other words; if the price of oil drops; exploring further to produce more oil sand become risky and not profitable. Then, nobody needs modular buildings to live in for a few months/years.
On the other hand, Black Diamond now trades with a PE ratio of less than 16, offers a 4.70% dividend yield and still show strong fundamentals. Will the future be brighter for this company? I think that if you are patient enough (and earning almost a 5% dividend is enough to wait), you can make a very good bet on this company.
When I looked at the other 20 companies, I didn’t find anything very interesting worth mentioning. this is why I decided to sacrifice one metric – the earnings growth over 5 years – to see if we could find something interesting… and I did!
AGRIUM (AGU)
Agrium took a very important hit in 2012 when the price of potash dropped after a game changing event in this industry. This explains a small drop in the earnings of less than 4% over the past five years.
This make the pick a less stellar choice, but helps many dividend investors who are willing to take additional risk to diversify. We can expect a great future for the company which delivers potash, a crucial product in the agriculture industry. We are continuously looking to improve our productivity to feed more people with less land used.
The payout ratio is relatively low (50%) for a company that is slowly digging out of a big hole. With a dividend yield of 3%, this makes it another good pick.
WSP GLOBAL (WSP)
I recently wrote about WSP global (read the article here) and this stock is also part of our DSR portfolios. WSP went through a few difficulties in 2012 and the company is now “coming back from the dead”.
Revenues grew by 39% and the payout ratio is under 60%. The company is getting more and more contracts as the industry is in need of more civil engineers to handle current and future projects.
Unfortunately, even by removing the earnings growth criteria, I wasn’t able to find many companies. Once again, I decided to look in the low dividend yield area to see if there wasn’t one or two hidden gems…
FINNING INTERNATIONAL (FTT)
Finning International distributes Caterpillar products North of the border. Once again, if you are looking for a good company to diversify your portfolio, I think this stock deserves your attention. It meets all the DSR investing principles on top of showing one of the lowest payout ratios at 32% (considering a 2.44% dividend yield).
We can certainly expect additional sales in the upcoming years as the mining industry has been pretty down lately. The next boom will drive FTT sales higher and the company will most likely increase its dividend payout at that time. the dividend increased by a total of 61% over the past five years.
I’M CURIOUS – WHAT IS YOUR HIDDEN CANADIAN GEM?
Do you have any “less common” Canadian dividend stocks in your portfolio that performed well over the past few years? let me know!
Disclaimer: I hold shares of BDI and BDI, AGU, WSP and FTT are part of our Dividend Stocks Rock Portfolios.
