14 Canadian Dividend Stocks With High ROIC

Increasingly, more and more investors have pivoted to exclusively buying stocks that have high returns on invested capital (ROIC).

On the surface, it looks like a pretty solid strategy. If you’re looking for high returns, why not hunt for companies who have demonstrated they have the ability to generate high returns on invested capital. Charlie Munger even approves of the plan, essentially saying that over time a stock’s return will inevitably converge with its ROIC.

However, there are a few issues with the strategy. High returns on capital usually attracts competitors, who crowd in and usually drive down ROIC. It’s also a backwards looking number. A high ROIC in the past doesn’t necessarily mean that number will be high in the future.

Some businesses might also be tapped out, unable to reinvest their capital at higher returns. They’ll either chase lower returns or, potentially, do something silly like make an ill-advised acquisition. Usually, in that situation, the prudent thing to do is to repurchase your own shares or pay a dividend. Some execs understand that; most don’t.

Let’s take a closer look at 14 high ROIC Canadian dividend stocks. All data is taken from Tikr, and is for the 2022 fiscal year, but I haven’t confirmed its accuracy. This is more of a quick list for further research.

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Canada’s ROIC dividend champions

1. Bridgemarq Real Estate Services

Ticker: TSX:BREROIC: 146.57%Dividend yield: 9.0%

Bridgemarq Real Estate Services is a real estate royalty company, owning the trademarks to Royal LePage, Via Capitale, and Johnson & Daniel. It collects royalties from Realtors operating under these brands, getting paid each time a transaction closes, or via monthly fees. The company has tried to pivot away from purely transactional payments to charging agents more fixed fees, but it doesn’t really hide the fact that this stock will trade up or down based on the overall outlook of Canadian housing.

In other words, if you’re a housing bear, you’ll probably want to avoid this one.

1. Yellow Pages

Ticker: TSX:YROIC: 68.83%Dividend yield: 6.5%

Most people wrote off Yellow Pages a decade ago, proclaiming their namesake product to be obsolete. They were right, but the company has successfully diversified into things like owning websites, online advertising, social media management, and print advertising to small and medium-sized businesses. After struggling with its debtload for years, Yellow Pages is debt free and can easily afford its 6.5% dividend.

The problem with this one is Yellow Pages is a slowly shrinking business. Revenue has fallen by 67% since 2016, although profitability has been essentially flat since 2018 on a per share basis thanks to an aggressive share repurchase program. It has decreased the number of shares outstanding by more than 30% since 2019.

1. BRP Holdings

Ticker: TSX:DOOROIC: 56.48%Dividend yield: 0.67%

BRP is the modern version of Bombardier Recreational Products, the inventor of the snowmobile and the only part of that company that was ever worth much of anything. It has since expanded into things like Seadoos and boats, and has embraced new technologies by coming out with new products like a fully electric snow machine. Despite posting excellent long-term growth, excellent returns on capital (and returns on equity), and consistently repurchasing shares via special tenders, this stock trades at less than 9x next year’s projected earnings and free cash flow.

Yes, BRP holdings is cyclical, so perhaps a little patience might result in a better entry point. Still, it’s an excellent long-term compounder that has quietly performed very well as a public company.

1. Evertz Technologies

Ticker: TSX:ETROIC: 36.37%Dividend yield: 5.68%

Evertz is a designer and manufacturer of video and audio infrastructure solutions for the television and telecommunications industries. This isn’t really a growth business, so the company has really only grown revenue by the rate of inflation over the last decade or so. It has also been investing more in R&D, which has mostly just driven down profits. Still, the company is comfortably profitable and earns enough to pay its generous dividend. It also earns attractive returns on invested capital. Additionally, shares have really done nothing in the last few years and are reasonably priced at about 15x forward earnings.

1. Imperial Oil

Ticker: TSX:IMOROIC: 29.45%Dividend yield: 3.06%

Imperial Oil is one of my favourite oil and gas stocks (CNQ is the other), because it simply does everything right. The company has perhaps the best balance sheet in the sector. It consistently repurchase its shares. And it pays a dividend that is both pretty generous today and has potential for long-term growth. Add in one of the sector’s best (and most consistent) ROIC numbers, and I don’t see why investors would seek out other energy names. Buy Imperial Oil and relax for a couple decades, and I think you’ll do just fine.

1. West Fraser Timber

Ticker: TSX:WFGROIC: 29.20%Dividend yield: 1.43%

Generally, forestry is one of those sectors where good money goes to die. But West Fraser has bucked that trend, consistently delivering results much better than most of its peers. Its diversification into various types of engineered wood products has helped, and the company’s net cash position is the envy of peers. It has consistently grown its top line and has been consistently profitable — although that profit has been pretty volatile.

Note that WFG’s ROIC is extremely volatile based on lumber prices. Those looking for exposure to the same sector with more consistent ROICs should consider Stella Jones.

1. Pet Valu Holdings

Ticker: TSX:PETROIC: 26.10%Dividend yield: 1.31%

Pet Valu is a specialty pet retailer operating across Canada with 751 stores across the country. It has recently surpassed Petsmart as Canada’s largest pet retailer by market share, and growth looks strong as more and more Canadians are willing to spend on pets.

The company is franchise driven, with franchisees owning approximately 75% of locations. The economics are excellent, with the average store delivering almost $2M in sales and $200k+ in EBITDA. Management thinks there’s potential to increase store count from today’s levels of approximately 750 to more than 1,200.

We’ll take a closer look at this one on the paid side in a few weeks.

1. Dollarama

Ticker: TSX:DOLROIC: 25.70%Dividend yield: 0.325%

Dollarama is perhaps Canada’s most successful stock, at least since its 2009 IPO. It also continues to be one of your author’s favourite names. Dollarama’s has managed to become a dominant Canadian dollar store chain without falling victim to the issues plaguing its American brethren. It continues to grow like a weed, surpassing 1,200 stores in Canada. It also has an investment in Dollar City, a Latin American dollar store chain.

The only real issue is valuation. Dollarama trades at an eye-popping 43x trailing earnings. It’s a little more attractive on forward earnings, but it still trades at more than 25x next year’s projected earnings.

1. Richelieu Hardware

Ticker: TSX:RCHROIC: 21.83%Dividend yield: 1.44%

Richelieu Hardware is another underfollowed Canadian gem that has quietly put up excellent returns. Richelieu is an importer, manufacturer, and distributor of specialty hardware products. Products include furniture, glass, window & door hardware, lighting systems, and kitchen/closet storage. It is an active acquirer, doing 84 separate deals over the last 30 years, increasing sales from $60M to $1.8B in that time.

Richelieu only owns a small percentage of its market, suggesting plenty of additional room for expansion. More on this one in a few weeks on the paid side, too.

10. Spin Master Corp

Ticker: TSX:TOYROIC: 22.11%Dividend yield: 0.70%

Spin Master is the creator, designer, and manufacturer of various toys and entertainment products for children. Prominent products include Paw Patrol, Rusty Rivets, Hatchimals, Rubik’s Cube, Etch a Sketch, and more. It has a solid balance sheet — including a net cash position — and has steadily increasing earnings, although the trend has its share of peaks and valleys. Shares are also down pretty significantly over the last year and are within a few percent of a 52-week low. The stock is also pretty cheap, trading at just 13x analyst earnings expectations for 2023.

1. TFII International

Ticker: TSX:TFIIROIC: 20.50%Dividend yield: 1.25%

Led by CEO Alain Bedard — who will likely go down as one of the great CEOs in Canadian history — TFII International is a trucking company which is mostly in the business of acquiring other trucking companies. Fortunately, it’s a fragmented industry, so there’s still quite a bit of opportunity for TFII to acquire, and likely at attractive prices, too. That bodes well for high returns on invested capital in the future.

As investors wait for the latest acquisition to buoy the business, they get to hold one of North America’s most efficient logistics companies, and one that trades at a pretty reasonable valuation, too. It also generates gobs of free cash flow, capital returned to investors via periodic share buybacks and a steadily increasing dividend.

1. Information Services Corp

Ticker: TSX:ISVROIC: 20.41%Dividend yield: 3.77%

Long-time readers know I’ve been a fan of Information Services Corp for a while now. ISV’s main asset is the right to operate the Saskatchewan registry system, an excellent business that spins out tons of sweet, predictable cash flow. A portion of that cash flow is then used to acquire complementary businesses, giving the company a nice growth avenue.

A major risk was just eliminated last week when ISV announced it reached a deal with the Government of Saskatchewan to extend its registries contract to 2053. Shares popped some 20% higher on the news. But the stock is still relatively cheap, with shares trading under 14x 2022’s earnings.

1. Corby Spirit and Wine

Ticker: CSW.BROIC: 18.08%Dividend yield: 6.2%

Corby is one of Canada largest manufacturers and distributors of spirits, controlling iconic brands like Jameson, Wisers, and Absolut, among others. It also recently acquired ACE Beverage Group, the fastest growing ready-to-drink alcoholic beverage brand in Canada. It was a nice win-win scenario; ACE should be able to really supercharge sales by using Corby’s logistics network and sales staff.

Corby’s portfolio is positioned nicely with both spirits and ready-to-drink alcoholic beverages growing faster than either beer or wine, two categories that have been slowly shrinking over the last few years. Shares trade at a reasonably valuation of approximately 15x earnings, too.

1. Sleep Country

Ticker: ZZZROIC: 16.88%Dividend yield: 3.33%

Sleep Country is Canada’s largest mattress retailer, growing operations to 290 corporate-owned stores spread across the country. It has also acquired various specialty mattress retailers, including Endy, Silk & Shaw, and, most recently, Casper. The company has delivered fairly predictable revenue growth, although top line growth could stumble over the next couple of years as a potential COVID hangover takes effect.

Sleep Country also offers some of the highest gross margins you’ll see in retail (40%, comparable to Dollarama), a steadily increasing dividend (with a low payout ratio), and a solid balance sheet. The company has also recently begun a share buyback program.

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