Canadian Dividend Investors
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Maximize Profitability
Focus on return on equity, not earnings per share.
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Warren Buffett
Assuming you have minimized the financial risk associated with owning a company’s common shares, you should then consider companies that have a record of being highly profitable. The return on equity (ROE) is a convenient measure of a company’s profitability and is defined as the net (after tax) income divided by the shareholders’ equity. When you buy the common shares of a company, you are actually buying a proportionate share of the company’s equity, based on the number of shares you buy. Therefore, the higher the return on equity, the greater the profitability of your investment.
Figure 2: Representative ROE values for the companies in my current portfolio, as judged from the historic values for ROE reported for each company by Value Line.
The historic returns on equity for Sun Life Financial have been highlighted Figure 1, which presents a portion of the Value Line report for Sun Life Financial, dated October 31, 2025. As shown, the ROE ranges from a low value of 9.7% in 2020 to a maximum of 14.4% in 2021, with most of the values being between 10% and 11%. You must use your own judgment in choosing a representative value for each company, since simply using an average value of ROE for the most recent five or ten years can be misleading.
Figure 2 summarizes the representative ROE values for the companies in my current portfolio, as judged from the historic values for ROE reported by Value Line.
Figure 2: Representative ROE values for the companies in my current portfolio, as judged from the historic values for ROE reported for each company by Value Line.
I suggest owning Canadian companies that have a minimum ROE of 10%, the higher the better. As indicated in the foregoing table, the ROE values for Telus and Enbridge do not meet this criterion, primarily because both companies have been expanding their operations and, therefore, their capital expenses are high. It is expected that once this work is completed in the next few years, their capital expenses will fall and their revenue, earnings, and profitability will rise.
Canadian companies often appear to be less profitable than many of their international peers. In some cases, this is because the Canadian population is smaller and more widely dispersed as compared to the U.S., China or Europe. It is also possible that Canadian companies only appear to be less profitable, because Generally Accepted Accounting Principles (GAAP) are applied more conservatively by Canadian companies, as compared to some of their international peers. In any case, I still suggest that you invest in Canadian companies for the reasons stated earlier in Chapter 7 of this guide.
1. Attributed to Warren Buffett. Source unknown.