Quickly Identifying Undervalued Dividend Growth Stocks in the May 31, 2013 Updated Canadian Dividend All-Star List

I Spy
Flооd / Foter.com / CC BY-NC-ND

I’ve updated the Canadian Dividend All-Star List for the month. You can download the latest version here. For awhile now I’ve wanted to add some extra information to the list. It took quite awhile, but I was finally able to finish it. I’m quite excited about these changes as I think they add real value to the list.

The list now includes the low stock price for every year for the past decade. This information allowed me to determine the highest yield for each of the past 10 years and the 3, 5, and 10 year average highest yield amounts. I’ve also included columns that compare the current yield to the averages so that you can quickly see if there are any companies that look undervalued based on yield. You’ll find more details in the Notes tab of this month’s downloadable list.

The low stock prices and highest yield averages are the biggest changes this month, but there were also some smaller changes that have been updated in the list:

  • Pason Systems Inc (Click for a FREE trend analysis of TSE:PSI) switched from a semi-annual dividend to a quarterly dividend.
  • WaterFurnance Renewable Energy (Click for a FREE trend analysis of TSE:WFI) pays out dividends in USD, so I added a note.
  • For companies that pay out dividends in USD an extra row has been added below that shows the USD dividend amounts converted to Canadian dollar amounts using the average annual exchange rates from the Bank of Canada website.

Now that I’ve gone over this months change, let’s take a look at some of the dividend increases that were recorded in May. Of the 22 companies that recorded a dividend in May, 8 increased their dividend.

May 31, 2013 Dividend Increases Table 1

Dividend increases ranged from 4.17% from Waterfurnace Renewable Energy Inc to a 25.81% increase from Lassonde Industries (Click for a FREE trend analysis of TSE:LAS.A). The largest increases all came from the lower yielding companies which is often the case. As you can see there were 4 dividend increases above 20%, but they all yield 2.0% or less. I like to buy dividend growth stock that yield at least 2.5%. If I’m expecting large increases like over 20% in the future then I’ll accept a yield as low as 2.0%. Of the 4 largest dividend increases this month only Jean Coutu Group (Click for a FREE trend analysis of TSE:PJC.A) has a yield of 2.0% or higher. If I look at its more recent dividend growth rates (1, 3, and 5 years) it looks like it would be reasonable to assume an average annual dividend growth rate around 15%. This is intriguing, but let’s see if it is undervalued.

In this next table I compare the current yield to the 3, 5 and 10 year highest yield averages to see if any of the companies are currently yielding more than their historically high averages. If the current yield is higher than these averages then it would indicate that the stock is undervalued.

May 31, 2013 Dividend Increases Table 2

Now when I look at Jean Coutu Group I can see that the current yield is approximately 17%-20% below the 3 and 5 year highest yield averages and 14.2% above the 10 year highest yield average. I’d like to see the current yield higher than all three averages before I’ll buy or look into it further, so while Jean Coutu Group offers appealing dividend growth, the price is still too high to meet my entry criteria.

McGraw-Hill Ryerson Limited (MHR.TO) is the only company of the 8 that currently yields more than the 3, 5 and 10 year high yield averages. From the first table I can see that it has a good payout ratio of 27.81%, and its yield is above 2.5% coming in at 3.15%. It has increased its dividend for 11 consecutive years which is an impressive streak for a Canadian company. These are all good signs, but the dividend growth is a little less than I like to see. The annual average dividend growth rates for 1, 3, 5, and 10 years range from 5.3% to 7.3%, with the more recent rates closer to 5% or 6%. The most recent increase came in at 5%. This combined with the past dividend growth rates would lead me to believe that annual dividend growth will be around 5% going forward. This is below the 8% I like to see, and the trading frequency and market capitalization are quite low so I’m on the fence about the stock. I won’t be able to fully decide to invest in this stock until I complete a full dividend stock analysis.

Part of why I was so excited to include the annual highest yields for the past decade and the averages is that it makes it a lot easier to quickly identify undervalued dividend growth candidates in the Canadian Dividend All-Star List. In my example with the 8 companies that recorded an increased dividend in May you can see how I was able to quickly identify McGraw-Hill Ryerson Limited as potentially undervalued. With so many companies to invest in, I find it helpful to have a way of sifting through all that information to identify potential dividend growth candidates. With my updated list, now you can to.

6 comments to Quickly Identifying Undervalued Dividend Growth Stocks in the May 31, 2013 Updated Canadian Dividend All-Star List

  • Elspeth

    I really appreciate your work on this spreadsheet. If you’re ever willing to do some more big modifications to your spreadsheet, I offer a few requests:
    - make the market capitalization column have real numbers (yours end in B and M, which don’t work very well in a spreadsheet)
    - Adding either a column that has the free cash flow or the price/free cash flow ratio
    - Adding a column with the beta (5 year, 10 year, I don’t care very much)

    Either way, thanks so much for keeping this up!

    • Hey Elspeth,

      First off, thanks for the support.

      - I like you’re idea about the market capitalization, I’ll see if I can change this. Right now it just comes in that format from Yahoo Finance, but I might be able to figure something out, so that it is still automated.
      - I’d really like to have a column with the free cash flow shown, but I haven’t been able to figure out how to get the information. The data is pulled from Yahoo Finance, but I’m limited in the data I can get. I’m not sure I’ll be able to add this in unfortunately. When I first starting making the list I looked at taking data from FinViz because it has free cash flow data. FinViz doesn’t have data for a lot of Canadian companies in the list, so I wasn’t able to use it.
      - I’ll have to look into the 5 and 10 year beta more, I’m not sure if I can get it or not.

      Thanks for the suggestions!

  • Jenn

    Hey! I think it’s a great idea for you to have your own blog and rich and I definitely will be following you. The spreadsheet is awesome and I can tell the time you have taken to put all of this together. If you don’t mind, I was going to link to your blog on mine that is just getting up and going. Mine has absolutely nothing to do with finance, but somehow I will magically make it flow ;). Thanks for an awesome resource, we will tell people to check out your blog for sure!

    Jenn and Rich

  • Rob

    I came across your site thanks to drip investing.org. I was hoping they would add a Canadian table. Thank you!!!

    I like using cash flow for my dividend payout ratio. A good site to grab the info from is Reuters.

    Once again thank you and keep up the good work!

    • Thanks for stopping by Rob. I’m glad you like the Canadian Dividend All-Star List. I’d like to be able to add a cash flow or free cash flow column in the table, but I haven’t been able to find a free source of this information yet. Reuters will charge you if you use their data stream and I’d like to try and avoid entering it in manually to the list as this would take quite some time.

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