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Retirement 100 (Fall 2013)

A vacation is a wonderful thing. But the ability to take one can be a luxury, which was brought home to me when I visited my barber. I had just returned from some time off to learn he hadn't taken a substantial break in years. You see, my barber isn't a wealthy one.

But all is not lost, because he's a young fellow and still has ample time to save for retirement. What he needs now is a touch of financial independence, or findependence as we like to say around here. After all, everyone should be able to take a break without fearing penury.

One way to achieve findependence is to build an income-generating portfolio of dividend stocks. The money the portfolio throws off can help fund the odd vacation and, more importantly, provide some reassurance there will be an ample nest egg waiting for you when you return home. Over the longer term, when your portfolio produces a suitable amount of income it becomes possible to think about retiring permanently. Unless, of course, you really love your work.

To help you find the best Canadian income stocks we're pleased to present the annual edition of the MoneySense Retirement 100, which grades the largest dividend payers in the land and helps you determine which ones might be right for your own income portfolio.

We're happy to report our past efforts have exceeded expectations. Our A-graded stocks have climbed a total of 95% since we started back in 2007. Stocks with either an A or B grade advanced by 58% on average. These strong returns are all the more remarkable because the stock market experienced one of its biggest crashes since the Great Depression early in this period. By way of comparison, the S&P/TSX Composite index, which tracks the broad Canadian stock market, logged a total return of just 13% over the same time period.

Long-term results are one thing, but the Retirement 100 has also performed well over the last few months. Our A-graded stocks surged by 28% on average since last year, while those rated either A or B advanced 20%. Again, our top dividend stocks beat the S&P/TSX Composite index, which moved up only 9%. (The Retirement 100 performance figures include dividends that are reinvested when we update the list. They are compared to total return index data, which more regularly reinvests all of its dividends.)

We're overjoyed with our results, but aren't about to declare that you're guaranteed to make a fortune with every A- or B-rated stock. The market just isn't that predictable. Nonetheless, we think such stocks deserve your attention and further research.

The Retirement 100 grades each of Canada's largest dividend stocks based on its ability to provide generous income to investors for a reasonable price. It's simple. If you've read a report card, you'll be able to understand our grades. When grading each stock we take a hard-nosed numbersbased approach. We search through the Bloomberg database for detailed financial information on the largest dividend-paying stocks. Then we trim the list to remove firms that have been around for less than a year, and those lacking the detailed financial data we need. The grades are based on a stock's yield, reliability, and value.


The more money firms send your way, the better. That's why we gave top marks to stocks with high dividend yields. We also rewarded those with a good record of dividend growth because we like it when our income climbs over time.


We want some assurance a company will continue to pay its dividend. That's why we reward stocks that earn more than they pay out. We give additional marks to firms with little debt compared to their peers because balance sheets stuffed to the brim with liabilities tend to be risky.


On the value front we want to buy lots of assets for a low price. That's why better grades went to companies with moderate to low price-to-book-value ratios. (A measure of how expensive its net assets are.) We also prefer profitable stocks with low prices relative to their earnings.

Putting all these factors together we arrived at the final grades for each of Canada's largest 100 dividend stocks. In total, only four earned an A, but 18 managed a solid B this time around.

Retirement All-Stars
Bank of Montreal (BMO)
Bank of Nova Scotia (BNS)
Power Financial (PWF)
Toronto-Dominion Bank (TD)
As of September 9, 2013

We were pleased to see three stocks from last year make it to the top of the class again this year. Power Financial (PWF), Scotiabank (BNS) and TD Bank (TD) all got As again. The Bank of Montreal (BMO) also got top marks this year after growing its dividend for the first time since the crash of 2008.

The banks often get good grades in the Retirement 100, and this year they have done particularly well. It's worth highlighting a few of their positive and negative attributes.

On the positive side, the big Canadian banks operate in what might be best described as a cozy oligopoly. As a result, they are able to extract more cash from their customers than banks in more competitive markets. That may not be good for the consumers of financial products, but it's mighty fine for bank shareholders.

On the other hand, it can be easy to loan money at low rates in good times, only to be stuck with the bill in bad times. Speaking of good times, the lofty price of Canadian real estate poses a real concern for banks.

Overall, Canadian banks have great franchises and are strong cash generators. But shareholders shouldn't mistake them for being totally risk-free either. Their share prices could get chopped in half, or more, in the next recession. That's roughly what happened during the crash of 2008 and 2009.

Keep in mind that smart investors consider unique or intangible features that may not be reflected in the hard numbers. Sometimes these features are beneficial, such as understated assets, but at other times they can be detrimental. Perhaps a firm has environmental liabilities from a recent oil spill or a deluge of new competitors. It's well worth your time to consider such possibilities.

Use our grades as a starting point for your research. Before buying a stock, make sure its situation hasn't changed significantly. Read press releases, and regulatory filings to get up to speed. The purpose of the Retirement 100 is to provide a few good ideas you can then investigate in more detail.

First published in the November 2013 edition of MoneySense magazine.

Past Retirement 100 / Income 100 / Top Trusts Articles

    Retirement 100: Fall 2012
    Retirement 100: Fall 2011
    Retirement 100: Fall 2010
    Income 100: Summer 2009
    Income 100: Summer 2008
    Income 100: Summer 2007
    Top Trusts 2006
    Top Trusts 2005

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Disclaimers: Consult with a qualified investment adviser before trading. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, financial advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. More...