The Canadian Rock Stars List is a selection of the safest dividend stocks in Canada. Which Canadian dividend stocks are the best? Those with the highest yield? Or those with the strongest dividend growth? Moose Markets presents you with the Canadian Dividend Rock Stars list: a selection of Canadian companies showing both income and growth. You guessed it; we prefer a combination of dividend growth and dividend yield. Here’s why…
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Dividend Growth Investing = Safe Investing with More Money, Less Stress
“When you have confidence, you can have a lot of fun. And when you have fun, you can do amazing things.”
My entire portfolio is invested in dividend growth stocks. Some holdings act as “fixed income” as they offer a stable dividend yield and can weather market storms. Some others are my “growth equity” as they offer lower yield, but strong dividend growth and stock price appreciation potential. The combination of various dividend growers will create a balance where your portfolio will help you retire stress-free.
Strangely enough, even Vanguard (a pioneer in ETF investing) conducted its own studies on the recent market history and concluded that dividend growers are among the best-performing assets.
According to Vanguard’s study over this 20-year period, dividend growth stocks not only beat the market, but they did it with less volatility. While dividend growers usually provide investors with less volatility, you will still go through challenging periods where your favorite holdings will show red numbers. This is where you may start losing confidence and start wondering if it would be appropriate to cash your profits and protect your capital.
How the Canadian Rock Stars List Has been Built?
This Canadian dividend stocks list has been created with the help of our investment membership; Dividend Stocks Rock. When we left in our small RV to drive down to Costa Rica, we lived the adventure of a lifetime. It was a wonderful experience because we had a clear strategy. We knew where we were going, why we were doing it and we even had ways to handle more difficult days. The market will keep throwing you curveballs, so let’s make sure you don’t whiff on them.
At Dividend Stocks Rock, we also have a clear strategy: we focus on dividend growth stocks. We handpick companies showing a strong dividend triangle (e.g. revenue, earnings, and dividend growth potential) and make sure we understand their business model. It is sometimes frustrating to follow such a clear, but strict strategy. We sometimes must ignore great investing opportunities because they don’t fit in our model. Since our model is quite easy to understand and we know why we are using it, we never doubt ourselves.
We have created the Canadian Rock Stars list based on the combination of three metrics creating the dividend triangle. It’s a stronger list compared to the dividend aristocrats as we combine various metrics on top of dividend growth. By filtering the market to find Canadian stocks showing growing sales, growing earnings and growing dividends, we are convinced we can pick among the best Canadian dividend stocks, period.
The Dividend Triangle is key to identifying safe Canadian stocks
With a smart combination of three metrics, you’ll be able to pick the best stocks from our list. You can quickly identify safe investments using the dividend triangle:
A business is not a business without revenues. What is the difference between a company with growing revenues versus a company showing stagnating results? We are looking for companies with several growth vectors that will ensure consistent sales increases year after year. I’m a big believer in “offense is the best defense”. Whenever we are about to face a recession, I want to make sure I have companies that have shown past revenue growth. This is an excellent indicator that their business model is doing well, and they won’t enter a recession in a position of weakness.
You cannot pay dividends if you don’t earn money. Then again, this is a very simple statement. Still, if earnings don’t grow strongly, there is no point of thinking that the dividend payment will increase indefinitely. Keep in mind that the EPS is based on a GAAP calculation. This is what makes EPS imperfect, as accounting principles are not aligned with cash flow. This means you are better off looking at the EPS trend over 3, 5, and 10 years. Use an adjusted EPS that discounts those one-time events revealed by the company to have a clear view of what is happening. Some companies could “play around” with earnings for a year or two, but you can’t create a trend out of thin air.
Finally, dividend payments are the *obvious* backbone of any dividend growth investing strategy. But I don’t focus on the real dollar amounts or the yields because our real focus is solely on dividend growth. Dividend growers show confidence in their business model. This is a statement claiming that the company has enough money to both grow their business and reward shareholders at the same time. This also tells you that the business can pay off its financial obligations and invest in new projects (CAPEX). No management team will increase their dividend if they lack the cash to run their business.
What does a Strong Dividend Triangle Look Like?
It’s one thing to put those metrics into a stock screener, but it’s another to know what to do with them. The problem I face with a simple stock screener is that it will give me the 3year or 5year annualized growth, but I can’t see the trend.
Once I identify a company with a strong dividend triangle, my second step will be to look at the trend over the past 5 years for each metric. This period is long enough to show the current trend and highlight some jumps or drops that I must investigate. For example, I’ve pulled the dividend triangle of one my favorite stocks: National Bank:
As you can see, revenue, earnings, and dividend follow a similar trend. There was a decrease in earnings during the pandemic which led to a pause (forced by regulators) of dividend growth. Now that the pandemic is behind us, National Bank is back on the Rock Stars list with a strong dividend growth potential.
Canadian Dividend Stock List Metrics
The Canadian Dividend Rock Stars list is comprised of only Canadian stocks that show a minimum revenue and earnings growth of 1% for the past five years. We could have asked for higher requirements, but considering the pandemic, we wanted to make sure we capture all dividend growers that deserve to be a Rock Star. While we didn’t include a minimum yield (dividend yield on this list goes from 0.29% all the way up to 15%), we required a minimum dividend growth rate of 5%. As you know, dividend growth = more money and less stress.
Building a list with only three metrics would not give you enough information for your research. For this reason, the Canadian Dividend Rock Stars list includes around 40 financial metrics. You can then use the filter you want to identify the perfect Canadian stock for your portfolio. The Rock Stars list also includes some of Refinitiv Starmine scores:
StarMine Credit Score
The current regional 1-100 percentile rank of a company’s 1-year default probability is based on the StarMine Combined Credit Risk Model. The Combined Model blends the Structural, SmartRatios, and Text Mining Credit Risk models into one final estimate of credit risk at the company level. Higher scores indicate companies that are less likely to go bankrupt, or default on their debt obligations, within the next 1-year period.
The combined credit score includes metrics from three different models:
- Structural: Structural leverage, asset volatility, and asset drift.
- SmartRatios: profitability, leverage, coverage, liquidity, and growth & stability
- Text mining: transcripts, Reuters news, filings, research
As you can see, the credit score is a combination of the business finance structure, ratios, and how artificial intelligence analyzes the company’s news and transcripts. Pretty powerful metrics!
StarMine ESG Score
Refinitiv ESG Combined Score is an overall company score based on the reported information in the Environmental, Social, and Corporate Governance pillars (ESG Score) with an ESG Controversies overlay. The ESG score you find in the stock screener shows the combined scoring of the four factors mentioned above. Here is an example of how 3M (MMM) Controversies score has fallen because of their lawsuits in 2018-2019:
This scoring gives you a particularly good idea if the company is a good corporate citizen. Since MMM has a good reputation overall besides those legal incidents, the overall ESG score is positive:
The score you will find in the stock screener is rated from 1 (worst) to 100 (best).
StarMine Value Score
The current regional 1-100 percentile rank of the security is the overall Relative Value Model. Higher scores indicate stocks with the best value when considering all Relative Value model components that are relevant for the stock.
The relative valuation model will use a combination of 6 valuation metrics:
- Price/Cash Flow
- Dividend Yield
Download the Canadian Dividend Rock Stars List
This Canadian dividend stocks list will be updated quarterly. By subscribing to our newsletter, you will receive the updated version of the Rock Stars list quarterly.
You can download the list here.
Happy stock research!