Friday, 29 August 2014

Shareholder Yield - How do the popular dividend stocks measure up?

Recently we introduced  the idea of using Shareholder Yield as broader measure of dividend stocks that are likely (according to historical experience and some academic research) to provide better returns for the investor. We took the holdings of one dividend-oriented ETF to get a feel for how its stocks stack up but found little link between the holdings and Shareholder Yield. This week we'll take another stab at the idea by taking the most popular dividend stocks - those held by all, or most of the eight Canadian dividend ETFs (reviewed in our post this past January) - and see how they come out in terms of Shareholder Yield. We've updated the list of most popular dividend stocks that we had compiled in this post in February.

Shareholder Yield - To recap, this measure is the sum of Dividend Yield plus net Share Buyback Yield (% change in number of common shares resulting from issuance and repurchases over the past 12 months with a rise in outstanding shares considered to be a bad thing and thus termed negative yield) plus net Debt Paydown Yield (% change in total debt, with a reduction being considered good for shareholders and thus positive yield).

The Comparison Table
The basic data on dividend yield and other columns comes from GlobeInvestor's Watchlist, except that we have had to calculate ourselves (using the raw debt and share numbers in Google Finance Canada) the Share Buyback Yield and Debt Paydown Yield since no free source seems to publish that data. Our table shows all the stocks - 31 in total - currently held by at least five out of eight dividend ETFs
(click to enlarge table image)

The most popular dividend stocks generally also look positive from a Shareholder Yield viewpoint

  • 18 of 31 (58%) have positive Shareholder Yield
  • The average of all the top stocks has a slightly positive Shareholder Yield - 1.04%
but ...
  • Dividend yield, which of course is positive for every stock by design in these ETFs, compensates for an average negative yield of both stock buyback and debt reduction.
  • Increases in debt cause most of the cases of negative Shareholder Yield, although the stock with worst result, Northland Power's minus 46%, saw large increases in both net share issuance and additional debt
Some companies shine across the board - the dividend and shareholder yield superstars
Eleven companies have fine looking numbers across every metric with a solid cash dividend backed by low or negligible stock and debt issuance. Along with that there have been good dividend increases over the past five years and double digit return on equity.
  • Shaw Communications (TSX symbol: SJR.B)
  • Bank of Montreal (BMO)
  • CIBC (CM)
  • Corus Entertainment (CJR.B)
  • Royal Bank of Canada (RY)
  • Bank of Nova Scotia (BNS)
  • Canadian Oil Sands (COS)
  • Potash Corp. of Saskatchewan (POT)
  • Husky Energy (HSE)
  • Laurentian Bank of Canada (LB)
  • TD Bank (TD)
Potential opportunity stocks to buy or to avoid
A handful of stocks in our list exhibit contradictory indications that suggest extra digging into the situation may reveal interesting prospects. Canadian Oil Sands has a healthy Shareholder Yield of 8.6% where there has been no extra debt and no share issuance, plus a strong return on equity of 16.5% and a 5-year record of strongly increasing dividends. Yet its total return for the past five years is a disappointing 1.6% annually. Potash Corp presents a fairly similar picture. Sun Life (SLF) has been reporting stronger results so perhaps its stock, which has started to revive, might further catch up with much higher returns that the rest of the stocks in the dividend superstars have been achieving. Maybe it will also escape being a Market Dog, as we described the other day.

On the other hand, Northland Power Inc seems like a much riskier investment. The very large negative Shareholder Yield of 45.9% has been accompanied by no dividend increases. Yet the stock has seen strong annual total returns of 17.9% compounded. In looking at company news releases, the latest quarterly financial statements (not yet reflected in the Globe WatchList data in our table which shows positive net income) show a large net loss with the company paying out all its free cash flow in dividends. Success seems to hinge on stick-handling the various expansion projects, whose need for funds explains the large share issuance and debt addition.

Disclosure: This blogger directly owns shares of SJR.B, BMO, RY, BNS, POT

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.

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