Amid earnings season, investors are eager to see how companies on their watch list and in their portfolios have performed during the latest quarter. Today, we will search for Canadian dividend-paying companies with growing returns on capital invested and rising profits.
For the Globe and Mail this week, we look for Eleven Canadian companies with profit growth.
We screened the Canadian stock universe by focusing on the following criteria:
- Market capitalization greater than $500-million;
- Three-month and 12-month growth in net operating profit (NOP). This is a measure of operating efficiency that excludes operating costs, focusing on the company’s core operations;
- Three-month and 12-month growth in the return on capital (ROC). This is a profitability ratio that measures the returns expected for both debt and equity investors;
- A current economic performance index (EPI) equal to or greater than one – this ratio is the return on capital to the cost of capital. It gives shareholders an idea of how much return the company is generating on each dollar spent. An EPI of one would indicate that return of capital is just enough to cover the costs of capital.
- Dividend yield greater than 2 per cent;
- Free-cash-flow-to-capital ratio. This metric gives us an idea of how efficiently the company converts its invested capital to free cash flow, which is the amount left after all capital expenditures have been accounted for. It is an important measure because it gives us the company’s financial capacity to pay dividends, reduce debt and pursue growth opportunities. We are always looking for a positive ratio.