The theory is that you should use the dividend yield to see if a dividend stock is selling at a stock price that is relatively cheap. A stock price is considered cheap if it is selling at a dividend yield higher than the historical high yield or higher than the historical average yield or historical median yield. See my spreadsheet at dividend growth stocks that I just updated for April 2019. On this list,
- I have 10 stocks with a dividend yield higher than the historical high dividend yield,
- I have 56 stocks with a dividend yield higher than the historical average dividend yield
- I have 75 stocks with a dividend yield higher than the historical median dividend yield and
- 86 stocks with a dividend yield higher than the 5 year average dividend yield.
- I have 12 stocks with a dividend yield higher than the historical high dividend yield,
- I have 55 stocks with a dividend yield higher than the historical average dividend yield
- I have 77 stocks with a dividend yield higher than the historical median dividend yield and
- 87 stocks with a dividend yield higher than the 5 year average dividend yield.
- I had 9 stocks with a dividend yield higher than the historical high dividend yield,
- I had 45 stocks with a dividend yield higher than the historical average dividend yield and
- 39 stocks with a dividend yield higher than the 5 year average dividend yield.
Alimentation Couche-Tard (TSX-ATD.B, OTC-ANCUF)
Badger Daylighting Ltd (TSX-BAD, OTC-BADFF)
Canadian Natural Resources (TSX-CNQ, NYSE-CNQ)
Dollarama Inc (TSX-DOL, OTC-DLMAF)
Enghouse Systems Limited (TSX-ENGH, OTC-EGHSF)
Equitable Group Inc (TSX-EQB, OTC-EQGPF)
North West Company (TSX-NWC, OTC-NWTUF)
Parkland Fuel Corp (TSX-PKI, OTC-PKIUF)
Power Financial Corp (TSX-PWF, OTC-POFNF)
Premium Brands Holdings Corp (TSX-PBH, OTC-PRBZF)
Stella-Jones (TSX-SJ, OTC-STLJF)
Of the stocks I follow, two stock has cut their dividends. Those stocks are:
Dorel Industries (TSX-DII.B, OTC-DIIBF)
Maxar Technologies Ltd (TSX-MAXR, NYSE-MAXR) and to US$.
Of the stocks I follow, no stock has suspended or terminated their dividends. There is a tension between needing money for investing in growth and paying dividends.
Most of my stocks started out as Dividend Payers. Currently 13 stocks are not paying any dividends and this would be some 8.39% of the stocks that I follow. Four of these stocks never had dividends, so 5.81% of the stocks I follow have suspended their dividends. The three stocks that never paid dividends are Ballard Power Systems Inc. (TSX-BLD, NASDAQ-BLDP), Blackberry Ltd. (TSX-BB, NASDAQ-BBRY) and Trigon Metals Inc. (TSX-TM, OTC-PNTZF).
I am showing whether a stock is relatively cheap based on historical high dividend yields (P/Hi), historical average dividend yields (P/Ave), historical median dividend yields (P/Med) or on 5 year median dividend yields (P/5Yr). See these fields on the right side of the file. You can highlight a particular stock using your cursor to highlight the appropriate line.
There are always some stocks to buy because they are priced reasonably. There are always stocks to currently avoid because they are overpriced. Looking at dividend growth stocks that are selling at stock prices that give them a dividend yield above the historical median dividend yield are probably the best bet.
The stocks that are selling at prices that give them a dividend yield above the historical high yield could be good stocks to buy. However, these stocks may be selling so cheap because of current troubles, especially financial troubles and should be treated with caution. Do not forget that I have all the stocks I follow on this spreadsheet and some are much better investments than others.
You should always investigate a stock before you buy. Sometimes different stocks in certain sectors are just out of favour or the stock market is just in one of its declines. However, a stock may be relatively cheap because it has problems. That is why you should always investigate a stock before buying.
Looking at stock this way is equivalent to a stock filter. A main problem I know of is for the old income trusts. These companies have generally lowered their dividend yields forever and they will probably never get back to the old dividend yield highs they made as an income trust company. For these stocks, you might be better comparing the current dividend yield to the 5 year median dividend yield. I also started a column called VT (for Valid Test) and this applies to checking stock price using dividend yield. If it is not a valid test I use N to show this.
Also, on some stocks I have a lot more information years in my spreadsheets than for other stocks. So, finding a stock on the list as "cheap" is only the first step in finding a stock to buy. This is the same with any other sort of stock filters that you can use.
The last thing to remember is that I have entering figures into a spreadsheet. I could put them in incorrectly, I can transpose figures and I can misread figures. This is another great reason why you should check a stock out before investing. As this is just a filter, it works better on some stocks than on others.
See my entry on my methodology in establishing the historical dividend yield highs and lows for the stocks that I cover. I have an entry on my introduction to Dividend Growth. You might want to look at my original entry on Dividend Growth Stocks. I have also written about why I like Dividend Growth companies.
On my other blog I wrote yesterday about Sun Life Financial Inc. (TSX-SLF, NYSE-SLF) ... learn more. Next, I will write about Alaris Royalty Corp (TSX-AD, OTC-ALARF) ... learn more on Wednesday, April 03, 2019 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
See my website for stocks followed and investment notes. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits. I am on Instagram with #walktoronto.