With interest rates in the US expected to rise in the short term, stocks that have garnered a premium valuation due to investors reaching for yield have started to experience a pullback. While no one likes to see investments decline, these types of movements can create good buying opportunities, especially for yield investors. When only sentiment and not the fundamentals have changed, there can be some opportunity for the discerning dividend investor. This month we are going to try to find some typically stable, yield-oriented stocks that may have experienced a decline recently.

Over time, investors have been looking for safe, stable sources of income to take the place of bonds that in many cases have been losing investors money after inflation. This demand for yield has led to prices in safer industries such as telecom, utilities and financials being bid up over the last few years. Now that interest rates in the US appear poised to increase within a year, investors are beginning to reposition allocations and take money out of high yield dividend stocks. This declining demand has been leading to declining multiples in some higher priced securities but also presenting interesting yield opportunities in many companies where not much has really changed aside from the share price and maybe how investors ‘feel’ about higher yielding stocks.

In order to see if some of these stable dividend payers are presenting interesting yield opportunities, we have decided to filter companies out by industry. Filtering by the financials, telecommunications, utilities and consumer staples industries to outline areas where investors have sought safety and income. These are some of the industries that have been experiencing higher valuations in the past and may now be showing weaker prices. In order to try to discover some deeper value opportunities, we have screened for companies that have seen a price decline of 6% or more over the quarter to date. Finally, we have also screened for stocks with a dividend yield in excess of 4%. The screen parameters follow:

• Country of exchange – Canada
• GICS sector – Cons. Staples, Financials, Telco and Utilities
• Dividend yield: Greater than or equal to 4% - Please note this is the trailing yield
• Quarter to date price change: Less than or equal to -6%
• Market capitalization: Greater than or equal to $100 million

The filter returned 22 stocks. Investors should not be surprised to see a lot of real estate investment trusts on the list.  With healthy yields and attractive valuations, these names are hard to ignore and one would have to think that interest rate risks are largely priced into the REIT sector. Of particular interest to us would be a model income portfolio holding, Superior Plus (SPB) and a financial stock, IGM Financial (IGM) that has recently been added to the income portfolio. SPB has seen a slow but steady pullback since late April while offering what we think is an opportunity for multiple expansion as the company deleverages as well as an attractive yield. IGM Seems to be on the decline largely due to general market concerns. Now yielding around 5.5% and with an attractive relative valuation, value investors may start to have their interest piqued at these levels. While the weakness trends could continue, the lower these dividend names go on what seems to be little news, the more interesting they become to longer term dividend investors. Please remember, the above list is simply meant to be an investment ‘idea generator’. The purpose of a filter is to create a list of potential investments; it does not mean that all on the list are investable securities. Be sure to subscribe to the blog to be notified of future filters.