In today’s market, it’s difficult to find quality, dividend-paying stocks at attractive valuations. Look at the investment section of your local newspaper, and you will quickly see the number of companies with stock prices hitting 52-week highs far outnumber those establishing new lows.
And that may not necessarily be a bad sign. Market breadth, the number of stocks that participate in a rally and contribute to advancing the S&P/TSX Composite Index (TSX:^OSPTX) may be a positive indicator of future gains. Conversely, market prognosticators believe the fewer stocks that drive the market higher, the more fragile the rally and the greater the likelihood of a correction.
Despite the challenge, I set out to find two stocks that meet my investment screen of a dividend yield greater than 4%, trailing price-to-earnings ratio under 12, and a price-to-book ratio of 1.50 or better during the most recent quarter. The price-to-book ratio, or P/B, is a company’s market capitalization divided by the amount of shareholder’s equity. If less than 1.0, the company is selling below its theoretical liquidation value and could be considered a value.
Here are two companies that found their way onto my watch list based upon the above criteria.
One of North America’s largest regional communications providers, Bell Aliant Inc. (TSX: BA) provides voice, data, internet, video and business services to customers across Atlantic Canada, Ontario, and Quebec. Bell Aliant competes with some of the communications heavyweights, including Rogers Communications (TSX: RCI.B)(NYSE: RCI) and Telus (TSX: T)(NYSE: TU).
Here is how Bell Aliant performed against the criteria:
- Dividend yield: 7.07%
- P/E: 9.19
- P/B: 0.83
Bell Aliant announces first quarter results today.
Laurentian Bank of Canada
Headquartered in Montreal, and employing around 4,000 people, Laurentian Bank of Canada (TSX: LB) offers financial services to individuals and to small and medium sized business through a network of approximately 155 branches — including 39 financial services boutiques, 16 brokerage offices, and 35 commercial banking centers.
The bank also provides investment accounts and services to financial advisors and brokers, as well as full-service brokerage services through Laurentian Bank Securities. In addition to Canada’s big five banks, Laurentian Bank of Canada competes with National Bank of Canada (TSX: NA) and Canadian Western Bank (TSX: CWB).
Here is how Laurentian Bank performed against the criteria:
- Dividend yield: 4.31%
- P/E: 11.79
- P/B: 1.07
Laurentian Bank announces second quarter results on June 4.
Foolish bottom line
Using a screen to uncover companies that meet specific investment criteria is a good first step. However, it is just that – a first step. Value investors should conduct additional analysis to determine whether Bell Aliant or Laurentian Bank are suitable investments aligned with their long-term objectives.