What are we looking for?
Resilient companies unfazed by an economic downturn.
The Bank of Canada’s key policy interest rate stands at 5 per cent, double what it was a year ago. Concurrently, year-over-year retail sales in Canada have already dipped into negative territory, declining by 0.6 per cent in June, according to the most recent monthly report. As the full impact of these interest-rate hikes looms and consumers begin to exhibit increased prudence, defensive options might emerge as appealing choices for equity investors.
The screen (add the screener here)
We screened Canadian stocks in the consumer staples, telecommunications and utilities sectors focusing on the following criteria:
- Market capitalization greater than $1-billion;
- Economic Performance Index (EPI) greater than or equal to 1. The EPI is return on capital divided by the cost of capital, and it is a measure of profitability adjusted for risk. An EPI higher than 1 implies positive economic value creation;
- Three-year annualized dividend growth greater than 4 per cent;
For informational purposes, we have also included price-to-earnings ratio, two-year sales growth, one-year price increase and dividend yield.
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What we found
| Ticker | Name | Price | MKT VALUE ($MIL.) | EPI | 3Y ANN. DIV GRTH. (%) | 2Y SALES GRTH. (%) | P/E | 1Y PRICE RTN. (%) | DIV. YLD. (%) |
| TA-T | TRANSALTA CORPORATION | 13.17 | 3469 | 2.2 | 9.2 | 50.8 | 13.9 | 0.8 | 1.6 |
| PBH-T | PREMIUM BRANDS HOLDINGS CORP | 103.68 | 4603 | 1.0 | 10.1 | 43.6 | 40.4 | 2.8 | 3.0 |
| FTS-T | FORTIS INC. | 53.43 | 25988 | 1.1 | 5.8 | 27.3 | 18.1 | -9.9 | 4.2 |
| T-T | TELUS CORPORATION | 23.35 | 33787 | 1.4 | 6.7 | 20.9 | 28.1 | -23.1 | 6.4 |
| MRU-T | METRO INC. | 69.9 | 16058 | 2.1 | 10.6 | 9.5 | 17.0 | -1.4 | 1.7 |
| L-T | LOBLAW COMPANIES LIMITED | 116.55 | 36956 | 1.9 | 9.6 | 9.0 | 18.7 | -1.9 | 1.5 |
| EMP-A-T | EMPIRE CO. LTD. CLASS A | 35.08 | 8885 | 1.7 | 11.2 | 7.8 | 13.2 | -10.5 | 2.1 |
| H-T | HYDRO ONE LIMITED | 36.04 | 21591 | 1.4 | 5.1 | 7.1 | 20.9 | 0.8 | 3.2 |
| WN-T | GEORGE WESTON LIMITED | 149.53 | 20620 | 2.0 | 8.6 | 6.1 | 12.4 | -4.0 | 1.9 |
| BCE-T | BCE INC. | 56.32 | 51380 | 1.4 | 5.1 | 5.5 | 22.4 | -13.5 | 7.0 |
| NWC-T | NORTH WEST COMPANY INC. | 31.03 | 1484 | 2.2 | 4.6 | 3.3 | 12.8 | -12.6 | 5.0 |
TransAlta Corp. is a diversified energy company known for producing electricity generated from natural gas, coal, hydro and wind. The company has increased its annualized dividend by a noteworthy 9.2 per cent over the past three years. With a P/E ratio of 13.9, TransAlta’s stock valuation appears reasonable, potentially offering investors an attractive entry point. Moreover, the company’s two-year sales growth of 51 per cent underscores its ability to expand revenues. TransAlta also demonstrates commitment to environmental, social and governance principles, as it is currently in a multiyear transition to convert or retire all of its thermal coal units by the end of 2025.
Premium Brands Holdings Corp. makes specialty food products, including high-quality ready-to-eat offerings. With an EPI of 1, the company creates little economic value added with its operations. However, Premium Brands’ substantial sales growth of 44 per cent over the past two years underscores its successful expansion and strong presence in its niche markets. The sales growth potential could pave the way for enhanced future value creation and serve as the foundation for increasing dividends. The company has raised its dividend by an annualized 10.1 per cent over the past three years.
Telus Corp. is a telecommunications company that specialize in providing internet and mobile plans. The share price decreased 21 per cent over the past year, partly because of sister company Telus International Inc.’s decline of 69.6 per cent. Amid these challenging circumstances, Telus maintains a notable EPI of 1.4, highlighting its robust position despite short-term challenges.
Investors are advised to do further research before investing in any of the companies listed in the accompanying table.
Anthony Ménard, CFA, is vice-president of data management at Inovestor.
