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Share Purchase Plans for 2005

The long-term risk-averse investor should consider three factors when selecting stocks with Share Purchase Plans (SPP). First, they should demand a low price. Second, they should require earnings stability. Finally, investors should look for modest, but not necessarily spectacular, earnings growth. I've used these three criteria to find interesting stocks for Canadian MoneySaver readers in 2001 and 2003. In this article, I take a look at the performance of my past picks and provide a new list of SPP stocks to consider.

The five SPP stocks of 2001 were Imperial Oil (IMO), The Bank on Montreal (BMO), The Bank of Nova Scotia (BNS), Alberta Energy Corporation (AEC) and B.C. Gas (BCG). 2001's stocks managed to handily outperform the market from February 15 2001 to February 4 2003 with capital gains averaging 13.5% versus a decline of 29.7% [Corrected from a decline of 14.0%] for the S&P/TSX60 index (as represented by the iUnits exchange-traded fund (XIU)).

The eight SPP stocks of 2003 are shown in Table 1 and were Imperial Oil (IMO), Suncor (SU), Scotiabank (BNS), Enbridge (ENB), BCE Inc (BCE), BC Gas (BCG) which is now Terasen (TER), National Bank (NA) and the Bank of Montreal (BMO). These eight stocks outperformed from February 4, 2003 to May 11, 2005 with average capital gains of 54.3% versus 43.3% for the S&P/TSX60 index.

Table 1: Performance of 2003's SPP stocks
CompanyPrice Feb 4, 2003Price May 11, 2005Capital Gain
Imperial Oil (IMO) $45.40 $86.49 90.5%
Suncor (SU) $25.92 $48.10 85.6%
Scotiabank (BNS)* $25.35* $39.82 57.1%
Enbridge (ENB) $41.55 $66.20 59.3%
BCE Inc (BCE) $28.75 $28.95 0.7%
Terasen (TER)** $19.80** $27.75 40.2
National Bank (NA) $32.00 $52.42 63.8%
Bank of Montreal (BMO) $40.88 $56.20 37.5%
Average 54.3%
S&P/TSX 60 (XIU) 43.3%
Source:, * Split 2-for-1, ** Name changed and split 2-for-1

Since 2001 the SPP stocks have gained 75.1% or 74.3 percentage points more than the 0.8% capital gain of the S&P/TSX60 index [Corrected from 51.9 percentage points more than the 23.2% capital gain of the S&P/TSX60 index].

There are currently twenty-three companies that offer Share Purchase Plans to Canadians. Two of the twenty-three are closed-end funds which Iíve excluded in an effort to stick to regular common stocks.

I first look for low prices and good relative value can be obtained by selecting stocks with high earnings yields (or high earnings-to-price ratios). Conservative investors should look for stocks with an earnings yield that is higher than the yield of long-term government bonds (near 4.58%). After all, stocks are riskier than bonds and investors should rightly demand a premium for the extra risk.

Given the parsimonious yield on government bonds, Iím also reminded of Benjamin Grahamís advice to avoid stocks with price-to-earnings ratios of more than 20 (or earnings yields of less than 5%). Iíll take Grahamís conservative advice to heart and cut out stocks with earnings yields of less than 5% which is a slightly higher hurdle than 4.58%. Seven of the twenty-one SPP stocks fail to pass the 5% bar and are excluded.

The next factor that I consider is earnings stability. Here the annual earnings-per-share history of each company is examined and stocks that suffer from losses in any annual period are discarded. It turns out that of the fourteen remaining SPP companies only one failed the earnings stability test.

Modest growth is next on my list. After all, 5% annualized growth provides a gain of about 41% over seven years and any business worth its salt should be able to do better. To determine earnings growth I start with the last ten years of annual earnings-per-share history. I then average the first three years of earnings data and then average the most recent three years of data. Growth is then found by dividing the recent average by the past average. This procedure helps to reduce the impact of an exceptional year on the calculated growth rate. In the end, seven of the remaining stocks managed to achieve a long-term earnings growth rate of more 41%.

The seven SPP companies that pass all three tests are shown in Table 2. Iíve also provided each stockís price-per-share, 7-year earnings-per-share growth, earnings yield, and Standard & Poorís debt rating. All of these stocks have investment grade debt ratings and, as a result, are relatively safe.

Table 2: 2005ís SPPs for long-term investors
Company Name Price Earnings Growth* Earnings Yield Debt Rating
Imperial Oil (IMO) $87.64 234% 6.2% AAA
Bank Nova Scotia (BNS) $40.04 138% 7.1% AA-
Enbridge (ENB)** $66.25 120% 5.1% A-
National Bank (NA) $52.65 100% 7.9% A
Bank Of Montreal (BMO) $56.28 78% 8.1% AA-
Fortis (FTS)*** $73.00 69% 5.7% BBB+
Dofasco (DFS) $33.85 61% 15.4% A-
Sources: Thomson Baseline,,, May 10 2005,
* Not annualized,
** To be split 2-for-1,
*** Fortis (FTS) split its stock 4-for-1, October 2005.

A portfolio of seven stocks does not provide adequate diversification but this problem can be overcome by moving beyond SPP eligible stocks. In my view, it is more important to select good long-term stocks than to stick with poor stocks just because they have share purchase plans.

Be sure to use my SPP list as a starting point and dig further to make sure that a particular stock is right for you. Although Iím hopeful that my approach will continue to perform well, strong performance can not be guaranteed.

To round out this month's article, I've a few special requests. If you particularly like one of my stock screening methods then let me know and I'll endeavor to provide more frequent updates. I'm also looking forward to a little summer reading. If you can recommend a good business book, send your recommendation to

Additional Resources:

+ SPPs for the Long Term
+ Share Purchase Plans for 2003

Date: June 2005


*** Fortis (FTS) split its stock 4-for-1, October 2005.

Corrections made to XIU capital gains as noted in the text in [ ]

It looks like I goofed up and calculated previous performance to May 11 but put this year's start at May 10. This makes it hard to chain performance figures together. As a result, I'll use May 11 as the start of 2005's list and not May 10. Thankfully, stock prices didn't change much on average (less than 0.6%) between May 10 and 11 of 2005.

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