A search for stability, with an eye on institutional ownership

The Globe and Mail, Number Cruncher

By Peter Ashton

Friday, February 16th 2017

In The Globe and Mail, Peter Ashton uses Strategy Builder to find Canadian-listed stocks that offer low volatility. 

What are we looking for?

We will be using  Strategy Builder to search for Canadian-listed stocks that offer low volatility, high institutional ownership and strong dividend yields.

We begin by setting a minimum market-cap threshold of$5-billion. This will focus our search on medium- to large-cap Canadian stocks, which typically have higher-quality revenue streams than their smaller counterparts and also have a track record of performance.

We will also screen to include only stocks with institutional ownership levels of more than 50 per cent. Institutions such as pension-plan managers typically have longer-term investment horizons and are less likely to make portfolio changes (thereby moving the market for the stock) in the event of a market draw-down.

Dividend-paying stocks often provide refuge in the case of market turbulence because of their income-generating nature. We will constrain our list to stocks with dividend yields of 1.5 per cent or more.

Finally, to select stocks with lower-than-average volatility, we will filter using beta. We will select stocks with beta of between 0.5 and minus-0.5. Beta measures the price correlation of a security compared with the entire market. Stocks with beta in this range exhibit smaller correlation to over-all market moves than the average stock.

What did we find?

Topping our list is pipeline giant TransCanada Corp. TransCanada offers below-average volatility with a beta of just 0.31 and also provides a 4.3-percent dividend yield. On Thursday, the company announced fourth-quarter results that exceeded analyst expectations for both revenue and earnings. The company also announced its plans to go ahead with a $2.4-billion expansion of its NGTL pipeline in Western Canada.

The lowest volatility on our list belongs to Algonquin Power and Utilities Corp. with a beta very close to zero. Over the past month, Algonquin Power traded down by just over 4 per cent compared with over 6.4 per cent for the broader market. The company also has a very high level of institutional ownership at 75.3 per cent.

The largest company on our list is Canadian National Railway Co. with a market capitalization exceeding $70-billion. CN offers very low volatility (beta is 0.35), combined with excellent long-term price growth. The stock has gained almost 90 per cent over the past five years, all the while offering a dividend, which currently yields 1.9 per cent.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.