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Adventurous investors take note. Norm Rothery visits the pound in search of a dozen dividend pups to expand to his pack
| S K I P A H E A D
Climbing CATS |
The Safer Canadian Dogs provide a nice pack of large high-yield stocks for conservative investors. But some people are more adventurous and want to buy smaller stocks that have room to grow. That’s why I went to the pound this week to look for some pups.
I started with companies listed on the TSX with revenues (over the last 12 months) of less than $1 billion. But, to avoid newborns, I stuck to stocks with market capitalizations (share price times shares outstanding) of between $100 million and $1 billion. Both are measures of size with one focused on operations and the other on the market’s view of a firm’s worth.
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Next I ignored firms that didn’t earn enough over the last 12 months to cover the dividends they expect to pay over the next 12 months. Doing so removes a few turnaround candidates, which may—or may not—actually turnaround. I also stuck to stocks trading for less than 20 times earnings. Both requirements help investors pick out safer stocks.
Finally, I looked for stocks with dividend yields in excess of 3% and below 6%. Here I’m looking for generous yields while avoiding stocks with extremely high yields (compared to their peers). The latter have a nasty tendency of cutting rather than growing their dividends.
The 12 stocks that passed muster are listed in the following table. Hopefully, you’ll find a few that deserve a home in your portfolio. Just keep in mind that small stocks are suitable only for more adventurous investors.
| Name | Price | P/B | P/E | Earnings Yield | Dividend Yield |
|---|---|---|---|---|---|
| Rogers Sugar (RSI) | $6.02 | 2.12 | 11.79 | 8.48% | 5.98% |
| Gluskin Sheff (GS) | $17.55 | 4.09 | 13.34 | 7.49% | 5.70% |
| Sprott (SII) | $2.28 | 1.54 | 13.98 | 7.15% | 5.26% |
| Supremex (SXP) | $4.65 | 1.54 | 8.65 | 11.56% | 5.16% |
| Valener (VNR) | $21.83 | 1.22 | 17.3 | 5.78% | 5.13% |
| Pizza Pizza (PZA) | $16.99 | 1.49 | 19.52 | 5.12% | 5.04% |
| High Arctic Energy (HWO) | $4.19 | 0.95 | 5.22 | 19.14% | 4.73% |
| Rocky Mountain (RME) | $9.99 | 1.1 | 12.65 | 7.91% | 4.60% |
| AGF Management (AGF.B) | $7.01 | 0.6 | 12.75 | 7.85% | 4.56% |
| Information Services (ISV) | $17.80 | 3.53 | 19.78 | 5.06% | 4.49% |
| Calian Group (CGY) | $27.33 | 2.45 | 13.87 | 7.21% | 4.10% |
| Melcor Developments (MRD) | $14.50 | 0.49 | 14.5 | 6.90% | 3.59% |
The Climbing CATS strategy is based on a momentum plus value combination. It starts with reasonably-sized Canadian firms and then focuses in on value stocks. Call them Cheap And Thrifty Stocks, or CATS, if you will. But it also looks for firms with strong relative momentum that have Climbed higher in recent times. Both value and momentum have worked well in the past.
More specifically, when it comes to size we start with a list of about 200 of the largest stocks that trade on the TSX. We then narrow down the search to stocks that have low-to-moderate price-to-earnings ratios. Finally, we pick stocks that have fared the best over the last 12 months.
The current list of Climbing CATS is shown in the table below. It represents a starting point for those who want to put some money to work and is best suited for more aggressive and experienced investors. Investors should aim to hold the CATS for a year.
| Name | Price | P/E | Dividend Yield | Total Return |
|---|---|---|---|---|
| Tembec (TMB) | $4.21 | 11.69 | 0.00% | 309.62% |
| Air Canada (AC) | $19.91 | 7.66 | 0.00% | 110.42% |
| Cascades (CAS) | $17.71 | 7.77 | 0.90% | 81.81% |
| West Fraser Timber (WFT) | $65.06 | 13.55 | 0.43% | 54.94% |
| Cogeco (CGO) | $74.75 | 10.75 | 1.82% | 49.03% |
| Norbord (OSB) | $41.76 | 13.08 | 2.87% | 48.51% |
| Cogeco (CCA) | $86.36 | 14.09 | 1.99% | 43.69% |
| AGF Management (AGF.B) | $7.25 | 13.18 | 4.41% | 43.23% |
| Transcontinental (TCL.A) | $25.30 | 10.18 | 3.16% | 40.30% |
| Canfor (CFP) | $20.62 | 14.32 | 0.00% | 37.32% |
Price: Closing price per share
P/E: Price to Earnings Ratio
Total Return: The total return generated by the stock over the last year
Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage
As always, do your own due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently. Remember, stocks can be risky. So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)
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