# TSX hi yield & low beta stocks



## dime (Jun 20, 2013)

Here's a list of the highest yielding TSX stocks which have a capitalization over 2 billion, beta under 1, and positive PE ratio under 50. There are only 25 TSX stocks which make the list. They are ranked by highest yield. 

List of TSX Highest Yielding Large Cap Low Beta Stocks

There are 40 TSX stocks with a market cap over 2 billion, beta under 1, and yield over 4%, but 15 are not profitable or have a PE over 50. I think that it looks like a good strategy to buy and hold the top 10 on this list every three months, and should likely outperform the TSX60 average. 

(As always, information provided for educational purposes to use at your own risk.)

What would you invest in today and why?


----------



## londoncalling (Sep 17, 2011)

Not sure if this is good or bad but I do not currently hold a single one.


----------



## Moneytoo (Mar 26, 2014)

From this list, recently purchased BCE, have limit orders for NPI and Emera. Was concidering BA a few month ago, but didnt want to have two telcos as only started constructing my portfolio and trying to diversify as much as possible.

Not considering REITs as have some XRE shares. Not considering banks and energy stocks as think they're currently overpriced and have some ZPR shares. Also, want to hold more growth stocks, so not limiting myself to the high-yielders. 

But thank you for the list!


----------



## dime (Jun 20, 2013)

Ok I just updated the list today. 

@ Moneytoo, interesting what you say. I just sold BA because it popped up over 12.5% in the past week - BCE plans to buy out the whole thing at $31 a share. 

As always be sure to do your homework carefully before buying anything, but heres what my stock screen shows might be worth a further look:

Both COS and RCI.b have a low price to cash flow ratio that's attractive. 

CPX is trading near it's book value of $24.20	

Stocks with a return on equity > 20% RCI COS PWF NPI BCE BTE MTL

Highest profit margins; NPI ERF BTE CPX IGM COS

Highest EPS estimated growth this year : AP.un BTE EMA PWF WSP IGM DH MTL 

Stocks with highest estimated earnings growth over the next 5 years. MTL IGM CPX CJR.B EMA RCI


----------



## Moneytoo (Mar 26, 2014)

dime said:


> Ok I just updated the list today.
> 
> @ Moneytoo, interesting what you say. I just sold BA because it popped up over 12.5% in the past week - BCE plans to buy out the whole thing at $31 a share.


Yeah, I saw the news (and thought for a second to sell my BCE shares as they also went up for a day ) - oh well, my loss... congrats on your gain! 

I realized I should be a trader lol - bought Cameco shares last Wednesday right before good uranium news, they went up more than 10% in 3 days, sold 2/3rds, now trying to stick to the "buy&hold long term" plan 

My husband is the opposite - he can wait for a good price for months! His limit order for NPI finally went through yesterday (I tried to rush him to buy at $17.70 - he waited patiently till it dipped to $17.50)

Will go through your list with him - thank you for updating it!


----------



## gibor365 (Apr 1, 2011)

Moneytoo said:


> My husband is the opposite - he can wait for a good price for months! His limit order for NPI finally went through yesterday (I tried to rush him to buy at $17.70 - he waited patiently till it dipped to $17.50)


 You never know  CSE and CKI missed my limit orders by couple of cents and then rallied about 50%


----------



## Moneytoo (Mar 26, 2014)

gibor said:


> You never know  CSE and CKI missed my limit orders by couple of cents and then rallied about 50%


Yeah, that's why I'd rather up the limit a bit - but then again, we both are still learning, so will have some regrets along the way


----------



## dime (Jun 20, 2013)

@gibor I hear you. It's frustrating for your limit order to miss your buy target within pennies only to watch it soar up up and away after. At least you can say there's some proof you were on the right track and know what you're doing. 

What I find it more difficult to know lately what a fair value PE ratio is. It seems like everything is 'overpriced' and people are increasingly wiling to pay a premium for lower risk assets like consumer staples, telecoms and utilities. So where an average 15 PE was the 'norm' going back in years past... it doesn't seem to exist now. Then you watch the market go up and up. You can enter some low limit orders hoping they'll fill if the stock comes down a bit. But knowing the market is expected to likely correct 10-20% in the coming months, you can wait and wait... and still no correction because of QE. I wonder what will happen in the fall with the end of QE?


----------



## Spidey (May 11, 2009)

I hold 5 of them - all real estate oriented - 4 REITs and FCR. It was 6 but I just sold off my COS a couple of days ago.


----------



## james4beach (Nov 15, 2012)

Did any of these _not_ crash along with the market in 2008? Or did you just find us a list of stocks that have low volatility during bull markets?


----------



## dime (Jun 20, 2013)

Great question James. I wish I had a good answer for you. You'd need to do some deeper portfolio analysis and backtesting. I don't know the time period used for that beta figure. 

The market indexes lost about 50% then, so I'd imagine any of these might have done something similar (or worse). I like the dividend yield so you're paid to wait when there's a market downturn, (as long as the dividend isn't cut!). 

And of course diversifying across different sectors with lower correlation helps to reduce portfolio volatility as well as position sizing. 20 years ago experts would write that it was 'over diversifying' to have more than 10 stocks. Now the experts seem to be saying 30 stocks is necessary for portfolio diversification.


----------



## james4beach (Nov 15, 2012)

As I was trading a lot right at that time, I strongly suspect that if you examine each one you'll find nearly 100% correlation with the broad XIU at the time of the turmoil. That was the interesting awakening during the 2008 crisis ... it turns out all equities, "blue chip" or "dividends" or not, all plummet in lock-step.


----------



## gibor365 (Apr 1, 2011)

dime said:


> @
> What I find it more difficult to know lately what a fair value PE ratio is. It seems like everything is 'overpriced' and people are increasingly wiling to pay a premium for lower risk assets like consumer staples, telecoms and utilities. So where an average 15 PE was the 'norm' going back in years past... it doesn't seem to exist now. Then you watch the market go up and up. You can enter some low limit orders hoping they'll fill if the stock comes down a bit. But knowing the market is expected to likely correct 10-20% in the coming months, you can wait and wait... and still no correction because of QE. I wonder what will happen in the fall with the end of QE?


But here is another thing.... P/E for CSE is still 10 and CKI - 5 , good yield and payout ratio is very reasonable.... so it looks like a good buy even now, just psycological it's difffucult to pull trigger after such huge run..
As per your spreadsheet, you have many REITs and P/E there kinda meaningful, you need to look at P/AFFO and AFFO payout


----------



## Moneytoo (Mar 26, 2014)

james4beach said:


> As I was trading a lot right at that time, I strongly suspect that if you examine each one you'll find nearly 100% correlation with the broad XIU at the time of the turmoil. That was the interesting awakening during the 2008 crisis ... it turns out all equities, "blue chip" or "dividends" or not, all plummet in lock-step.


I wasn't trading at that time, but read that a dividend portfolio (not from this post's stocks thou) fell 30% and recovered faster than mutual funds and ETFs: http://spbrunner3.blogspot.ca/2014/07/dividend-portfolio-2.html. 

Personally, I'd buy some of them in lieu of bonds - until the rates go up


----------



## james4beach (Nov 15, 2012)

I've heard people say this about dividend stocks, but charts show that during the actual bear market the performance is just as terrible as any other stock

2008-01-01 to 2010-01-01 with divs included

XIU: dropped as low as -41%, and ended -10%
XDV: dropped as low as -45%, and ended -5%

So much for dividend stocks being lower beta. That's definitely not the case. Then did end up slightly better than the broad market, but you have to also consider the fact that this has been a zero interest rate-driven stock market recovery... because dividend stocks are somewhat treated like bonds, zero interest rates specifically benefitted dividend stocks.

That scenario will not always be repeated. Interest rates are now at zero; they won't be cut further.

I think some people are taking away the wrong message from dividend stocks because of their amazing performance since 2009. These stocks went up on historically unprecedented interest rate cuts. This can't possibly be repeated going forward


----------



## Moneytoo (Mar 26, 2014)

james4beach said:


> I've heard people say this about dividend stocks, but charts show that during the actual bear market the performance is just as terrible as any other stock


Well then I'll keep buying the stocks that I "like" (for whatever reason ) Today for example my husband's Telus limit order got filled, and I'm trying to buy Boeing shares, next week - will see if New Flyer Industries Inc. will dip on its ex-div date (they've been up since i started watching the stock) 

Yes, they all happen to be lower Beta and ok yield - but then again, already own First Solar and Cameco


----------



## Pluto (Sep 12, 2013)

james4beach said:


> I've heard people say this about dividend stocks, but charts show that during the actual bear market the performance is just as terrible as any other stock
> 
> 2008-01-01 to 2010-01-01 with divs included
> 
> ...


There is another factor with dividend stocks and bear market drops in comparison to non dividend stocks. If you added/included the dividends received and one had held the stocks for a long time, it might not look so bad at market bottoms. I'm not sure it is fair to compare dividend payers to non dividend payers in market drops without including the value received in cash dividends over the years. 

I'm not too familiar with most of the stocks on dime's list but here is some tidbits on ones I know more about: 

FTS dropped 24% in the last 2008-9 crash, then very quickly recovered. that was a comparatively good performance but it doesn't make dimes list right now as it's yield is about 3.8. 

re a bank: BMO's price to book is about 1.8 the lowest, I think of the Canuck banks right now. Back in 2009 it's price to book was about 0.75 at it's lowest. It would seem at worst, it could fall 58% if it went to a p/b of .75 again (eg % change from 1.8 to .75 = 58%). Pre crash p/b was about 2. If that is of-any predictive value, 1.8 is getting near its former pre crash high. For what it is worth, its beta is 0.8, but to me, looking at a historical chart, and calculating its % decline in the crash is more meaningful than the beta number. 

Anyway, I'm not really keen on trying to outsmart the market right now by trying to cherry pick what is immune to crashes. I think I'll keep a lot of powder dry. 

But my main message was, if one has collected years of dividends, when a crash comes, even though the stock price may have dropped a lot, one has banked a lot of value in the form of dividends. so such stocks are not directly comparable to non-dividend paying stocks in bear markets.


----------



## HaroldCrump (Jun 10, 2009)

@James4B - you seem to be falling a victim to your own advice 

Over the last couple of years, we have seen you warn time & time against equity allocation.
You have stated in the past that your portfolio is 98% FI.

Yet, in the last few months, you have been steadily increasing your equity allocation.

You have preached, wagging fingers, against direct stock ownership, and instead dictated that any equity allocation should be via broad index ETFs.

Yet, in the last few months, you have been steadily buying direct stocks.

So, is this a case of _do as I say, not as I do_, or are you piling into a rising stock market, like novice, retail investors?

Having watched helplessly from the sidelines for the last 5 years as the stock markets across the board have gone straight up, you are now afraid of missing the boat?
You have finally realized that your 98% FI allocation is losing you money?
That true inflation is far above the 2% yields you are getting on GICs and HISAs?
So you are finally entering the equity market, quite likely at or near all time highs on all major indices/sectors?


----------



## My Own Advisor (Sep 24, 2012)

I own about half of these, in the TSX top yields list. Happy to do so.


----------



## james4beach (Nov 15, 2012)

HaroldCrump said:


> Yet, in the last few months, you have been steadily increasing your equity allocation.


It's because after unemployment, my income increased dramatically with my new job and I have more money. Keeping a constant equity allocation means I had to add some equities.



> You have preached, wagging fingers, against direct stock ownership, and instead dictated that any equity allocation should be via broad index ETFs.
> 
> Yet, in the last few months, you have been steadily buying direct stocks.


I explicitly and repeatedly said these are total gambles, not investments, and that I'm using gambling money I can afford to lose. I consider it a very high risk activity and would never call it investing.



> So, is this a case of _do as I say, not as I do_, or are you piling into a rising stock market, like novice, retail investors?


Nope, I think I'm pretty consistent and there are those other factors like my new job/income you would not know about.



> So you are finally entering the equity market, quite likely at or near all time highs on all major indices/sectors?


This part is actually very likely, and I fear it, but I do suddenly have new money to allocate. Buying some stocks didn't seem like a crazy idea. Remember, more of the new money actually stays in cash and GICs. Stocks are a tiny portion!


----------



## gibor365 (Apr 1, 2011)

_I explicitly and repeatedly said these are total gambles, not investments, and that I'm using gambling money I can afford to lose. I consider it a very high risk activity and would never call it investing_so you telling that if I hold directly 25-30 stocks with best fundamentals from TSX60 - it's "total gambles", but if I hold XIU - it's "investing"?!


----------



## dime (Jun 20, 2013)

james4beach said:


> As I was trading a lot right at that time, I strongly suspect that if you examine each one you'll find nearly 100% correlation with the broad XIU at the time of the turmoil. That was the interesting awakening during the 2008 crisis ... it turns out all equities, "blue chip" or "dividends" or not, all plummet in lock-step.


I understand your point in that when the markets correct, everything can seem to sell off together. But in attempting to study and understanding the correlation (or lack thereof) we attempt to mitigate the risks of investing through portfolio management. Investors can do some research to learn which asset classes have lower correlation between each, as well as market sectors which tend to be more defensive and lower correlation between. There's some interesting strategies out there on this approach to diversification to try to protect investment portfolios from volatility and market corrections. 


http://www.assetcorrelation.com/majors
https://www.columbiamanagement.com/market-insights/white-papers/ARPursuit


"So much for dividend stocks being lower beta. That's definitely not the case."

Beta is a number which can change, but it's usually based on 3 years of data as I understand it. Lower beta stocks in general day to day trading over the previous period used to calculate beta tend to demonstrate lower volatility. Beta is a useful tool for calculating risk. High beta stocks are so volitle day to day and will easily move by 5% up or down when the lower beta stocks may move less than 1% day to day. Compare a 1yr chart of a low beta stock to a high beta stock and the difference can be seen.


----------



## dime (Jun 20, 2013)

gibor said:


> But here is another thing.... P/E for CSE is still 10 and CKI - 5 , good yield and payout ratio is very reasonable.... so it looks like a good buy even now, just psycological it's difffucult to pull trigger after such huge run..
> As per your spreadsheet, you have many REITs and P/E there kinda meaningful, you need to look at P/AFFO and AFFO payout


Good point - glad you mentioned that. The REITs are a different animal and require different valuation metrics using AFFO. Also look for cash flow growth over the next few years. If they can't grow the distribution every year, the REIT could come down hard on rising rates again just like June 2013's 'taper tantrum'. A good place to find those numbers is in Canaccord's weekly REIT review newsletter.


----------



## Eclectic12 (Oct 20, 2010)

james4beach said:


> As I was trading a lot right at that time, I strongly suspect that if you examine each one you'll find nearly 100% correlation with the broad XIU at the time of the turmoil...


 ... for a large chunk it will be close ...




james4beach said:


> ... it turns out all equities, "blue chip" or "dividends" or not, all plummet in lock-step.


 ... I can see "most" but I'm not sure why you keep insisting on "all" when it's been pointed out in other threads that things like Loblaws, Metro went in the opposite direction or things like Coors-Molson or dropped by 18% to 20%.

"All" dropping in "lock-step" is clearly not the case.


Cheers


----------



## gibor365 (Apr 1, 2011)

_Canaccord's weekly REIT review newsletter. _ never heard about it.... can you share a link?


----------



## lonewolf (Jun 12, 2012)

james4beach said:


> I've heard people say this about dividend stocks, but charts show that during the actual bear market the performance is just as terrible as any other stock
> 
> 2008-01-01 to 2010-01-01 with divs included
> 
> ...




2008 sets the standard to beat. @ least 2 systems should be used for playing the market. One for going long & one for shorting. A system for going short should have made money in 2008 if not it should be scraped. a system for going long should have made money in 2008 if it was worth its salt.


----------



## james4beach (Nov 15, 2012)

gibor said:


> so you telling that if I hold directly 25-30 stocks with best fundamentals from TSX60 - it's "total gambles", but if I hold XIU - it's "investing"?!


That's a valid criticism of my comment. There's a threshold of diversification at which point you're not gambling so much.

*My* 8 stocks (currently) are more or less a pure gamble. These are just 8/300 of the TSX Composite. But choose 30 of the TSX 60 and that's getting close to the index, much less of a dangerous gamble.

I think if you're applying a good methodology to your 30 holdings, there's nothing wrong with that. This still takes time and effort. Keep in mind that S&P applies various screening criteria to what makes up the TSX. Things like market cap, liquidity, share price, filing regularity, etc are considered. If you mimic those same criteria you could do a great job with this.

Indexes aren't just an arbitrary grouping of stocks. And more importantly, indexes are dynamic things where stocks get dropped and added. This is part of why long term index investing is so great... many stocks have disappeared from the S&P 500 over time, and many great ones have been *added*. By investing in the index you're outsourcing that effort to the index creator.

The additions to the index over time are a huge advantage. Don't forget that the index keeps changing. One of my big criticisms of selecting individual stocks is the absence of a plan for dumping the losers. Indexes have ways to do this (market cap threshold is a big one). In contrast, when retail investors slap together a portfolio of stocks they tend to keep holding on to stocks that crash and die, mainly because they have no exit strategy or objective screening methodology.

You can do all of this yourself, but again we're talking time and energy required to do so


----------



## dime (Jun 20, 2013)

Spreadsheet updated.




gibor said:


> _Canaccord's weekly REIT review newsletter. _ never heard about it.... can you share a link?


Send [email protected] an email requesting to be emailed a copy each week. 
It's very good information. This is the July 14 copy: http://www.investorvillage.com/uploads/57919/files/REP_RealEst_07132014.pdf
The Hidden Joule is another newsletter they produce about utilities, pipeline and power trusts.


----------



## gibor365 (Apr 1, 2011)

dime said:


> Spreadsheet updated.
> 
> 
> 
> ...


Is it free?

_The Hidden Joule is another newsletter they produce about utilities, pipeline and power trusts_ do you have a link?


----------



## dime (Jun 20, 2013)

Stock list upated this morning.

@gibor Yes, I've had the REIT report emailed to me every week for years. Been meaning sign up for the joule as well.


----------



## gibor365 (Apr 1, 2011)

_Indexes aren't just an arbitrary grouping of stocks. And more importantly, indexes are dynamic things where stocks get dropped and added. This is part of why long term index investing is so great... many stocks have disappeared from the S&P 500 over time, and many great ones have been added. By investing in the index you're outsourcing that effort to the index creator_ 
That's true, but in many cases when stock dissapear from S&P 500 - it's good for shareholders : splits, M&A etc...
As per TSX60 , you you hold top holdings like 6 banks, SU, CNQ, 3 telcos, G, rails , FTS, POT etc ... I'm very doubtfull they will be deleted from index.... in any case you can always setup alert , for example P/E > 30, and sell


----------



## dime (Jun 20, 2013)

*List updated*

The list has been updated.


SJR.B looks interesting: 
A 'lowball' buy order on SJR.b at 26.50 or so over the next month or so? Look at the PE estimates into the next few years and it looks like the price will be coming down over the next year. The median 1 year target is 26.70.
I recall cable companies are typically lower risk / defensive.
https://www.tradingview.com/x/RcfgO2FI/


----------



## dime (Jun 20, 2013)

*list updated*

The list has been updated.


CPX caught my eye today with some selling action. TD rates it a 'hold' and gives it a $27 1 year target which is about 4% lower.

It's about 6% over it's 20 day moving average and is now at many of the 1 year targets set by brokers. If you own it should you sell? If it falls further should you buy? What do you guys think?

It's 2015 EPS estimate is 1.55 and 2016 is 1.77. At an average PE ratio among power companies of 18.8 for 2015 estimated FWPE ratios this gives price targets of $29 and $33 which gives a near 15% upside to 2016. CPX looks like a good play over the longer term. It has one of the lowest price to cash flow ratios at 6x. Although it might not be as sexy as high risk beta stuff like F-book, the utility companies are typically considered low risk / defensive plays. The current dividend is over 4.8% so you're getting paid a juicy dividend to wait.


RUS is trading about 4% under it's 1 year median broker target. It looks over bought and could be on it's way down towards $35 a share. It's current forward PE is 16.6. It's 5 year average forward PE is 14.6 and the 2015 EPS estimate is 2.40, giving a forward target of $35. The long term growth estimate is 11% but only a 3.4% net profit margin. A change in fuel prices, or underlying spot metal prices and other risks could affect the margin.
A price around $35 would be more in line with the 5 year average FWPE, and with a juicy yield over 4% I'd buy some RUS.


----------



## dime (Jun 20, 2013)

The list has been updated.

Group average:	5.27% yield, 0.46 Beta, 18.52 TTM PE, 16.68 FW PE

I plan to generate a group average from here on. It's a useful metric to know. 
Note that near the end of August the group average was: 5.11% yield, 19.81 TTMPE, and 17.21 FWPE

---------------------------------------------------------------------------

D.un is now yielding near 8%. Is it now oversold and a buy signal? 
TD rates Dream Office an "Action List Buy" and sets a target $35.00. They suggest the current price is "unjustifiably inexpensive" based on "an outlook on occupancy and rental rates that is far too pessimistic" resulting in a currently depressed unit valuation trading at 15% below NAV. 

Canaccord Genuity rates D.un a hold with a target of $30 and a total estimated return of 11%. They estimate only 1.1% for the compound annual growth rate in AFFO from 2012 to 2015. This suggests that any rise in interest rates could negatively affect the D.un stock price . This concern, however, appears to already priced into the stock. Note that 54% of the yield is classified as Return of Capital for tax purposes. 


-----------------------------------------------------------
Worth mentioning:
Tests show similar results whether or not TTM PE is used as a filter. 
The following stocks were excluded by the requirement for a positive <50 TTM PE: 
CPG, TA, HR.UN, MBT, AIM
(HR.un is also rated an TD Action List Buy)


These stocks were excluded by beta > 1 
ERF	Enerplus Corp 
POT	Potash Corporation of Saskatchewan Inc	
UFS	Domtar Corp


----------



## dime (Jun 20, 2013)

In order to narrow down the list to some top stocks I did some more research. 
Based on the EPS data from TD I looked at tonight... 

Of the stocks on the list it appears these are estimated to have > 10% EPS growth 2014-2015 
AP.UN
BNP
CPX
BTE
RUS
WSP
D.UN
BNE
MTL
IGM
CJR.B


And of those, some also estimated to have > 10% EPS growth from 2015-2016
CPX 
BTE
WSP
IGM
BNE




As always use at your own risk & do your homework


----------



## dime (Jun 20, 2013)

Since the September 13 list was last posted, the market value of those stocks on the list has dropped 5.5% on average by market price, compared to 3.45% for the S&P500. (However this is not total return after dividend income). With recent market volatility the beta on many of the stocks has risen higher than 1. Most of the losses have come from the oil industry related stocks. Oil has tumbled into a bear market and Brent crude has dropped to the lowest level in 27 months. 


The biggest losses (>10%) were from: 
BTE-T	Baytex Energy C…
WCP-T	Whitecap Resour…
IGM-T	IGM Financial
BNE-T	Bonterra Energy…
BNP-T	Bonavista Energ…
COS-T	Canadian Oil Sa…
MTL-T	Mullen Group
RUS-T	Russel Metals


----------



## dime (Jun 20, 2013)

The list has been updated

There are currently 24 TSX common stocks and REITS with a market cap over 2B which yield over 4%, beta under 1, and a positive forward PE under 50. The group average beta is 0.46, forward PE is 13.88, and yield is 5.30%

Globe investor has a stock screen for yield, but doesn't appear to screen for beta that I could see. So I used the watch lists feature to put this table together.

As always use at your own risk, and research carefully before investing.


----------



## dime (Jun 20, 2013)

Google finance has a stock screen which will quickly find the stocks on the TSX with a market cap over 2B, yield > 4 %, beta under 1 and PE under 50. It unfortunately doesn't show any FW PE data for TSX stocks. Anyone can use it to easily find the latest list any time you want (and it even works using a smartphone).

It shows 26 common stocks and REITS



Here are the results shown on the Google Finance screen as of Fridays close:
list of stocks




Note that Northland Power and TransAlta don't currently have a positive EPS. Finding stocks with positive estimated EPS growth is another very important to investing success. Stocks which show flat to negative estimated EPS growth from 2014 to 2015 are: EMA BOX.UN D.UN CUF.UN CWT.UN VSN CPX REI.UN

The remaining stocks are estimated to have near 10% or higher EPS growth. 

To be clear, not everything on this list is automatically a 'good investment' and further research is needed. But a good yield pays you some return while you hold the investment and the lower beta helps to reduce portfolio volatility. In addition portfolio diversification is a very important part of investing. Invest with care, and best of luck everyone!


----------



## GoldStone (Mar 6, 2011)

You use the same metrics to analyze common stocks and REITs. This is not the right way to go. You should screen REITs separately.

P/E, ROE, EPS etc do not apply to REITs. Use P/FFO and P/AFFO.

This article explains the basics of REIT analysis.
http://www.investopedia.com/articles/04/112204.asp


----------



## dime (Jun 20, 2013)

@goldstone agreed, thanks for pointing that out. REITs be valued using different valuation ratios than EPS and PE.

This list I try to update regularly is a list of TSX stocks with a market cap larger than 2 B, yield over 4%, beta under 1, with a positive FW EPS under 50. Lately there's around two dozen companies that match those requirements. Those criteria are a basic set of fundamental criteria for many investors. Many older people near or in retirement need the yield and the low volatility. The positive PE under 50 eliminates any company that isn't expected to generate any earnings in the coming year, as well as any excessively high priced stocks relative to the expected year forward earnings. 

Further research needs to be done to select your personal favs or 'top picks' on the list. Not everything on the list is automatically a 'good investment'.


----------



## My Own Advisor (Sep 24, 2012)

Own 12 of 24 and no intention of selling. DRIPping most.


----------



## dime (Jun 20, 2013)

The list has been updated. 

By using Google finance stockscreener to filter TSX stocks which have a market cap over 2B, PE under 50, positive EPS, and a Beta under 1 you get a list of 19 stocks (ranked by yield) 

The updated list is shared here. 

The average yield is 5.46, average beta is 0.41 and average PE is 19.48

As of Friday the TSX is down 7% since it's high in Sep 3. On average the stocks in this list are down -5.74% during the same period.


As always use at your own risk, and research carefully before investing.


----------



## GoldStone (Mar 6, 2011)

This is your spreadsheet so you free to do what you want...

but screening REITs by P/E is just wrong.

(as discussed before)


----------



## dime (Jun 20, 2013)

@ goldstone I know what you're getting at, but you might be missing the point of this list. 


Many investors are looking for investments yielding over 4% for retirement income. They also want low volatility (beta under 1 is less than the market average). Requiring positive EPS means that it needs to have positive earnings, which is a good basic fundamental to try and mitigate the risk. Requiring a PE under 50 is also reasonable fundamental to avoid looking at any company which is currently overvalued. 

Obviously there are many great stocks out there to invest in that aren't included in this list. This list is only just one approach, and a starting point for stock selection. It also will require further research to determine which stocks make a good solid investment that will make solid gains over time. (And of course no one knows what the future holds for any investment). 

Yes people can invest in companies with negative earnings, which are losing money. There's a place for contrarian investing, but it's also risky. A company with negative earnings may have to cut the dividend, and it can often take a long time for the company to return to profitability, or to recover your capital loss. 

Likewise investors can choose to invest in companies with a PE over 50 if they really want. It's a very high premium to pay, and often when the market corrects it's those 'high flyers' which pay the price and swiftly come back down to more reasonable valuations. I don't know about you, but most investors are more likely to choose a company with strong earnings, growth and which isn't over priced. 


So since you object to the criteria I'm using to make a list which includes REITS, is there a REIT with a negative EPS or PE over 50 do you think is currently a good investment?


The only stocks eliminated by the requirement for having a PE under 50 were:
Manitoba Telecom Services Inc, Brookfield Renewable Energy Partners LP, Veresen Inc

And in terms of requiring positive EPS, the only stocks that were eliminated by that requirement were:
Aimia Inc , TransAlta Corporation, and Northland Power Inc.


----------



## GoldStone (Mar 6, 2011)

Show me REITs with a negative EPS or P/E over 50.


----------



## dime (Jun 20, 2013)

Selecting stocks using the criteria of higher dividend yield combined with a reasonable forward PE will give better portfolio results over time. 

I analysed the performance of different strategies since 2010 using the backtest platform on TD Waterhouse. The results are based on buying and holding the top 10 on the list every 3 months. 

Setting the criteria of highest yield and largest market cap gives double the average annual return of the TSX60. However it has greater volatility with a 6 mo return of -4.6% vs 1.5% for the TSX60. 

Adding the criteria of beta <0.5 selects equities which trade at half the beta of the rest of the market. It results in more than 3x the average annual return of the TSX60 and far less volatility. 

Add the criteria of a Forward PE (or next 12 month PE) under 16 (and raise the beta 1 or less) and results in an annual return near 4x the return of the TSX60 with less volatility. 

Higher yield is the single factor influencing the best returns. But any other criteria on it's own is rather ineffective, and needs to be combined together with yield for best results. 

I also experimented with setting requirements using other fundamentals like price to book, price to sales, price to cashflow, or Return on Equity. But results didn't seem nearly as effective.


----------



## dime (Jun 20, 2013)

The latest updated spreadsheet is shared here

This list shows 30 TSX equities that have a market cap over 1B, ranked by highest yield and lowest forward PE estimate. 

Research indicates that investing in equities of cap size over 1B and selecting the 10 with the highest yield and lowest forward PE ratio every 3 months generates about 10% better annual returns on average than selecting the top 10 with highest yield.

The list averages are 6% yield, 12 forward PE, and .53 beta 

The strategy I'm following is to hold the first 10 on the list for the next quarter. But it would be also be interesting to see the total return for a portfolio fund composed of these 30 after a year or two. 
(Perhaps a year from now I should revisit this list and do the math!)


As always this list is a starting point for further research. Use at your own risk, and research carefully before investing.


----------



## Bulldogge (Aug 5, 2011)

dime said:


> The latest updated spreadsheet is shared here
> 
> This list shows 30 TSX equities that have a market cap over 1B, ranked by highest yield and lowest forward PE estimate.
> 
> ...


Thanks for taking the time to post this.


----------



## GoldStone (Mar 6, 2011)

Be careful. This screen is not very helpful when applied to REITs.


----------



## dime (Jun 20, 2013)

GoldStone said:


> Be careful. This screen is not very helpful when applied to REITs.


As I point out frequently, this list is a starting point. For any potential investment care must be taken to research fully before risking money.

And by no means am I suggesting this group of equities are 'the best'. There are obviously many great investments in the market not included in this list.

It's just one strategy out of many to choose from. Some people may find it helpful, while others may not. 


@ goldstone: of the 8 REITs included in the list, which do you rate 'avoid' or 'underperform' for the year ahead? 

Canaccord puts together an excellent weekly review of REITs. Maybe later this week I'll comb through it to see what rating they give each one. Dream office not to long ago was given a Action List buy rating by TD. 

Another place to see what the Pro analysts think is on globe investor.

For example 4 of 7 analysts give CAR.un buy or strong buy rating.
http://www.theglobeandmail.com/globe-investor/markets/stocks/analysts/?q=car.UN-T


----------



## GoldStone (Mar 6, 2011)

I would not use the same screen for stocks and REITs. They are different beasts.

Your screen is fine for short-listing stocks, although I question the criteria of (P/E < 50). It doesn't strike me as useful. P/E 50 is way too high. I would set the P/E criteria much lower.

As to REITs:

Your screen picks REITs with the market cap over 1B and the yield over 6%. That's all it does. P/E filter doesn't add any value because it doesn't eliminate any REITs. Beta filter is not useful either: all REITs have low beta compared to the broad market index.

The universe of Canadian REITs is small enough. You don't need a screen. Just read the analyst reports, such as the one you mentioned.


----------



## dime (Jun 20, 2013)

> I would not use the same screen for stocks and REITs. They are different beasts.


Yes they are different and can be evaluated using different metrics than stocks as we've discussed before. There are many different valuation methods available to investors. It's good to look at the estimated AFFO growth of a REIT. Perhaps we can start a regularly updated thread with top REIT picks that gets into more detail which has the best estimated AFFO growth for the next few years?

When it comes to REITs the EPS is considered by analysts to be skewed when finding the 'true' value of a REIT. The P/E ratio can often range from 30 to 50. Instead, FFO is used by analysts instead of EPS. Similarly I've noticed that analysts seem to recommend looking at free cash flow per share when looking at pipelines? I also remember in the late 90's during the dot com boom that analysts were suggesting that stocks didn't need to have earnings in order to increase in value! Then the dot com bubble burst. 


That being said both stocks and REIT's are investments and both offer yield. They are both traded on the TSX as equities and are held in an investment portfolio. 
I'm updating the list regularly because it provides a list of higher yielding equities for investors seeking total return. The results generated include REITs along with stocks... which serves just fine to offer a list of ideas to choose from. 

Including stocks and REIT's on the same list of potential investments for further research works just fine for many investors, as they are both good asset classes to have in a portfolio. 




> although I question the criteria of (P/E < 50). It doesn't strike me as useful. P/E 50 is way too high. I would set the P/E criteria much lower.


Agreed, on the latest list I've found 30 with year forward estimated PE under 16.5. The research shows a forward PE under market average (PE16) has outperform by about +10% when compared to ranking by yield only. Previously I've used a positive P/E <50 as a minimum. 




> Your screen picks REITs with the market cap over 1B and the yield over 6%. That's all it does.


Yup pretty much... but yield over 4% and also ranks them by lowest forward PE estimate, and lower beta. This is a 'keep it simple stupid' strategy for investors seeking total return.

The screen just helps to bring to attention the higher yielding equities with lower forward PE. It does not consider AFFO or AFFO growth and this is where further research for REITs is necessary. 




> You don't need a screen. Just read the analyst reports, such as the one you mentioned.


Yes, reading analysts reports is another strategy available to investors. Yes, perhaps some investors might even know most REIT's by memory, and don't need a screen.
You could even just buy a couple ETF's and call it a day instead of trying to select individual investments. 
But I find the more options I have available, the better. But use what works best for you!


----------

