Sunday, January 3, 2016

10 Canadian Dividend All-Stars Set to Shine in 2016

If I were a new dividend growth investor located in Canada, my first stop to look for potential companies to research further would be the Canadian Dividend All-Star list updated monthly at Dividend Growth Investing & Retirement. The monthly spreadsheet contains Canadian listed companies with a record of increasing their dividends annually over at least the last five years. Along with basic price, dividend, DRIP, payout, growth, and market capital information, the spreadsheet also includes some interesting financial ratios and technical information.

After seeing a fellow Canadian dividend blogger selling his top 10 dividend picks for 2016, my competitive nature kicked in, and I decided to compile my own 10 picks  based on the Canadian Dividend All-Star list. Instead of sticking with the well represented utilities, banks, and energy companies you would likely find in most Canadian dividend growth investors' portfolios, I'm limiting myself to one pick per sector. With only 78 names on the December Canadian Dividend All-Star list, I will let you know when my picks in certain sectors were limited. The only other filter I used to the list of 78, was to remove any company with a dividend yield less than 1%, which left me with 73 companies. On to the picks!

Although I made a pick from each sector on the Canadian Dividend All-Star list, there were an extremely limited number of potential companies in the Real Estate (3) and Technology (2) sectors. Given my love of Financial Services and Communications companies, I found those the two most challenging sectors in which to pick only one company. Lastly, I will freely admit that my knowledge of the Basic Materials and Technology sectors is extremely limited. Therefore, my picks in those sectors were mainly based on financial ratios and technical information.

Here's a very brief overview of why I made each pick:

Canadian Utilities - The company's exposure to the depressed Alberta market led to a 23% drop in share price in 2015. In my opinion, this was a huge over-reaction to the company with the longest record of annual dividend increases in Canada.

Enbridge - Kinder pulled down the share prices of some fantastic pipelines in 2015. Unlike Kinder, Enbridge can always raise cash by selling completed projects to Enbridge Income Fund at fair market prices. Plus, the price of natural gas that I buy from Enbridge has only went up each year.

Metro - Strong operating and financial results, great management, and strong gross margins at their Metro line grocery stores that are infamous for high prices. The 16% dividend growth rate in 2015 was also quite impressive.

SNC - Although ethical concerns persist, this company has customers around the world, and is the best Canadian infrastructure play. Canadian infrastructure spending should only grow in the next four years as it is a priority for the new federal Liberal government.

Canadian REIT - Out of the three REITs on the list, this company has the highest market capitalization making it the easiest to follow. The company also had the longest streak of raising its distributions.

Telus - After Shaw announced their acquisition of Wind in December, Telus's shares lost about 10% of their value, while Rogers & Bell were down much less. Although Shaw will eat into Telus's subscriber base in western Canada, Telus's relatively high customer satisfaction ratings and low churn should dampen the blow of new competition, especially compared to the other two national wireless players.

Evertz Technologies - Higher dividend yield and dividend growth rate and lower payout ratio than the only other Technology sector company, Computer Modelling Group.

Magna International - Magna's global customer base and essential components on key automobile platforms should limit cyclical volatility.

Bank of Nova Scotia - Strong consideration was given to Canadian Western Bank whose share price has been hammered due to Alberta exposure. Ultimately, Bank of Nova Scotia was more desirable due to their exposure in Latin America and an extra percentage point of yield (5% vs 4%).

Agrium - Despite my lack of knowledge in the Basic Material sector, Agrium's 3.9% dividend yield, 12% growth rate in 2015, and low (60%) payout ratio made it attractive to me, as did their US dollar denominated dividend.

Are any of the above companies in your portfolio or on your watch lists? Would you have picked other companies on the Canadian Dividend All-Star list in place of the ten above?

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