As investors, it’s our goal to outperform the overall market every year. There are many ways to go about trying to do this, but one of the best and least-risky ways I have found is to buy stocks that meet these criteria:
- The company is a leader in its industry
- Its stock is undervalued on a forward price-to-earnings basis
- It has a high dividend yield or it pays a dividend and has an active streak of annual increases
I’ve scoured the market and selected three stocks from different industries that meet these criteria perfectly, so let’s take a closer look at each to determine which would be the best fit for your portfolio.
1. Industrial Alliance Insurance and Financial Services Inc.
Industrial Alliance Insur. & Fin. Ser. (TSX:IAG) is one of the leading providers of financial products and services in Canada, including life, health, auto, and home insurance.
At today’s levels, its stock trades at just nine times fiscal 2016’s estimated earnings per share of $4.30 and only 8.5 times fiscal 2017’s estimated earnings per share of $4.55, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 14.4 and its industry average multiple of 16.4.
In addition, Industrial Alliance pays a quarterly dividend of $0.30 per share, or $1.20 per share annually, which gives its stock a yield of about 3.1%.
Investors must also make two notes.
First, Industrial Alliance has raised its annual dividend payment for two consecutive years, and its 7.1% hike in June 2015 has it on pace for 2016 to mark the third consecutive year with an increase.
Second, the company has a medium-term target dividend-payout range of 25-35% of its net earnings, and it expects its earnings per share to be in the range of $4.20-4.60 in fiscal 2016, so I think this growth will allow it to announce another dividend hike by the end of the year.
2. Thomson Reuters Corp.
Thomson Reuters Corp. (TSX:TRI)(NYSE:TRI) is the world’s leading source of intelligent information for businesses and professionals, which it describes as “a unique synthesis of human intelligence, industry expertise, and innovative technology.”
At today’s levels, its stock trades at just 19.9 times fiscal 2016’s estimated earnings per share of US$2.04 and only 17.5 times fiscal 2017’s estimated earnings per share of US$2.32, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 41.8 and its industry average multiple of 26.
In addition, Thomson Reuters pays a quarterly dividend of US$0.34 per share, or US$1.36 per share annually, which gives its stock a yield of about 3.4%.
Investors must also make two notes.
First, Thomson Reuters has raised its annual dividend payment for 22 consecutive years, and its 1.5% hike in February has it on pace for 2016 to mark the 23rd consecutive year with an increase.
Second, the company has a target dividend-payout range of 40-50% of its free cash flow, so I think its very strong growth, including its 24.6% year-over-year increase to $1.8 billion in fiscal 2015, will allow its streak of annual dividend increases to continue going forward.
3. Whistler Blackcomb Holdings Inc.
Whistler Blackcomb Holdings Inc. (TSX:WB) owns a 75% interest in each of Whistler Mountain Resort Limited Partnership and Blackcomb Skiing Enterprises Limited Partnership. Together, they operate its four-season mountain resort business in British Columbia.
At today’s levels, its stock trades at just 26 times fiscal 2016’s estimated earnings per share of $1.03 and only 23.7 times fiscal 2017’s estimated earnings per share of $1.13, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 39.8 and its industry average multiple of 39.6.
In addition, Whistler Blackcomb pays a quarterly dividend of $0.24375 per share, or $0.975 per share annually, which gives its stock a yield of about 3.6%.
Investors must also make two notes.
First, Whistler Blackcomb has maintained its current annual dividend rate since it went public in 2010.
Second, I think the company’s increased amount of free cash flow, including its 12.8% year-over-year increase to $73.6 million in its 12-month period ended on December 31, 2015, and its reduced payout ratio, including 69.2% in its 12-month period ended on December 31, 2015 compared with 72.9% in the same period in 2014, will allow it to announce a slight dividend hike in the second half of this year.
