The U.S. Federal Reserve’s decision to essentially cut interest rates to 0% helps eliminate the yield competition for equities. The aggressive move also underscores the challenges that the economy face.
As a result, RBC Capital Markets chief institutional strategist Myles Zyblock has updated his high-yield, high-predictability stock screen for both the U.S. and Canadian markets.
There are four criteria required for stocks to be considered: high predictability based on earnings variance and quality, recent history of a dividend increase (higher than it was 12 months ago), a dividend yield advantage versus their respective benchmark, and relatively high overall quantitative scores (based on value, growth, momemtum and predictability).
Within the S&P/TSX composite index, the stable, above-average dividend yielders are Telus Corp. (NYSE:TU), TransCanada Corp. (NYSE:TRP), Fortis Inc. (OTCPK:FRTSF), Shaw Communications Inc. (NYSE:SJR), Enbridge Inc. (NYSE:ENB), Rogers Communications Inc. (NYSE:RCI), Saputo Inc. (OTCPK:SAPIF) and ATCO Ltd. (ATCO)
Twenty names made the cut among Russell 1000 stocks, including Verizon Communications Inc. (NYSE:VZ), Coca-Cola Co. (NYSE:KO), Kellogg Co. (NYSE:K), Johnson & Johnson (NYSE:JNJ), Hasbro Inc. (NASDAQ:HAS), Norfolk Southern Corp. (NYSE:NSC) and Abbott Laboratories (NYSE:AT).
Every two weeks, Chad McAlpine, a quantitative analyst at RBC, puts together a list that shows the top-ranked stocks in the TSX composite (excluding trusts) based on value, growth, momentum and predictability. Five names made the top 15 based on both predictability and momentum. The names are: Rogers Communications, Enbridge, ShawCor Ltd. (OTCPK:SAWLF) [TSX:SCL.A], Shoppers Drug Mart Corp [TLX:SC]. and Tim Hortons Inc (THI).
He suggested that predictability will likely be a key factor during the first half of 2009, and at some point following peak earnings in Canada, momentum strategies should take the lead.