The stock equivalent of multi-dimension success is that separate ETFs and stock selection criteria lead to the identification and inclusion of certain stocks in the winners circle. The theory is that if certain stocks keep emerging as worthwhile choices, they must be good. The criteria we use today are those we have previously posted about:
- Low volatility stocks
- Sting Investor Norm Rothery's 2012 top Canadian stocks
- Reasonable CEO pay companies
- Purple chips
- August 2011 good buys
- Ultimate buy and hold stocks aka centenarians
- Dividend growers, both high-yielders and low-yielders and most recently,
- Dividend ETFs
Similar to the decathlon and heptathlon where consistency and the total over all disciplines determines who wins, our selections are based on which stocks show up again and again. They are stocks which look good no matter which way the selection criteria are sliced. They may not be the outstanding winner in any category but they are always good enough to make the grade and they get picked for the stock list or the ETF.
Three Canadian stocks show up in every Canadian dividend ETF (except the one actively managed ETF Horizons Dividend ETF (HAL), which we did not like at all per our previous post) as well as the 49 stocks that comprised our amalgamation and combination of the stocks that showed up repeatedly according to various evaluation methods in the above posts.
- IGM FINANCIAL INC. (TSX symbol: IGM) - the parent company of leading mutual fund providers Investors Group and Mackenzie
- ROGERS COMMUNICATIONS INC CL B (RCI.B) - well-known to the many Canadian consumers who use its cell phone, TV and Internet services
- SHAW COMMUNICATIONS INC CL B CONV (SJR.B) - offers similar services to Rogers
Four companies are within the holdings of five out of six dividend ETFs as well as showing up in the composite list of 49 good stocks.
- Fortis Inc (FTS) - a power utility
- BANK OF MONTREAL (BMO) - a big five bank
- POWER FINANCIAL CORP (PWF) - financial service holding company
- TRANSALTA CORP (TA) - a power utility
Ten companies make the grade of inclusion in four out of the six dividend ETFs along with being in the list of 49.
- EMERA INC (EMA) - a utility
- KEYERA CORP (KEY) - natural gas processing and transportation
- TELUS CORP (T) - telecommunications, TV and Internet services provider
- THOMSON REUTERS CORP (TRI) - business information and data provider
- TORONTO-DOMINION BANK (TD) - one of the big five banks
- TRANSCANADA CORP (TRP) - combo pipelines and power utility
- BCE INC (BCE) - telecommunications, TV and Internet services provider
- CIBC (CM) - another of the big banks
- GREAT-WEST LIFECO INC (GWO) - an insurance company
- PEMBINA PIPELINE CORP (PPL) - gas and oil pipeline operator
Many of the selection criteria themselves emphasize longer term past performance, whether it is earnings, dividends, or merely survival. In addition, our own posts looking at the various investing angles go back over several years. The lesson is that good companies and good stocks carry on doing good things, there is persistence and momentum, just like past champion athletes.
iShares S&P / TSX Equity Income ETF (XEI) is an outlier
One thing this further analysis of the holdings of the various dividend ETFs has revealed is that XEI has built an ETF that is quite different than the others. Its holdings contain far fewer of the good past performers - only 19 of its 75 holdings, or 25% , overlap the composite list of 49 solid stocks. The other dividend ETFs overlap anywhere from 40% to 60% of the list of 49. We think that makes XEI look a bit riskier.
Proven past performance does not guarantee a gold medal next time
As any sports fan knows, The fact that someone has consistently won in the past does not ensure a gold medal on the day of the competition.
Recent training, injuries, an in-form season, an athlete coming into prime or in decline and unexpected events can change things for this current Olympic competition or forever. It's a worthwhile analogous thought process for the investor to use in assessing these stocks.
To our athletes as they undergo the final weeks of preparations for London 2012, we say, "Go Canada, Go!"
Disclaimer: this post is my opinion only and should not be construed as investment advice. Readers should be aware that the above comparisons are not an investment recommendation. They rest on other sources, whose accuracy is not guaranteed and the article may not interpret such results correctly. Do your homework before making any decisions and consider consulting a professional advisor.