Six stocks passed the true yield test

Investment Editor

sadams@globeandmail.com

WHAT ARE WE LOOKING FOR?

The best dividend stocks in the country.

MORE ABOUT TODAY'S SCREEN

We're spending the week looking at the dividend growth research by George Vasic. Every year, the UBS Securities Canada Inc. strategist does a series of reports on dividend growth stocks. For the next two days we'll look at the best true yield stocks.

WHAT IS TRUE YIELD?

As Mr. Vasic said, companies can return money to shareholders in two ways: either dividends or stock buybacks. True yield measures both. It measures dividend yield together with share shrinkage - shares that companies buy back that lower the overall share count. True yield equals dividend yield less the three-year compound annual growth rate of the shares outstanding.

"We see true yield as a complement, not a substitute, for the dividend yield," Mr. Vasic said. "Dividends and share repurchases are not the same; the former represents cash in hand, are highly visible and can't be suspended or changed without direct consequence to the share price. And while share count is a better measure than buybacks for the reasons too, it too can be muddied by acquisitions (whether good or bad) or issuance to strengthen the balance sheet."

THE BEST TRUE YIELD STOCKS

Mr. Vasic looked across the S&P/TSX composite excluding trusts and screened for stocks with a dividend yield greater than 1.5 per cent, a true yield of more than 3 per cent, no increase in share count over the past three years, annualized dividend increases of more than 10 per cent over the past five years, and a payout ratio of less than 50 per cent.

The six stocks that passed the test in the accompanying table rose 28.9 per cent past year, versus 8.6 per cent for the S&P/TSX composite.

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