From MoneySense magazine, June 2008

We rate Canada's largest trusts and stocks based on their ability to provide generous income to investors for a reasonable price. Although we've used some high-powered math to arrive at our ratings, the results can be understood by anyone who's read a report card. The best firms score an A and good ones land a B. Solid but unspectacular candidates slip through with a C. Those that miss the mark go home with a D or even an F.

Our grades are based purely on the numbers. We didn't factor in our personal opinions about a sector or a firm. Instead, we scoured the Bloomberg database for detailed financial information. We restricted our ratings to Canada's largest firms by market capitalization. We then trimmed the initial list to remove candidates that have been around for less than a year, or lack the robust financial data we need for our detailed analysis, or that don't pay a dividend or distribution. Finally, we doled out marks based on three criteria: Yield, reliability and value.

Yield: Distribution Yield, Dividend Yield, Dividend Growth

The more money a firm puts in your pocket, the better. For trusts, we gave high marks to those with the highest distribution yields. For stocks, we gave top marks to those with high dividend yields and robust dividend growth.

Reliability: Distributions/Cash Flow, Dividend/Earnings, Debt/Equity

We like to see a high yield, but we like it even more when we feel confident that the yield will continue to be paid. To ensure our top-rated trusts are operating with a cushion of safety, we awarded high marks to those that pay out less in distributions than they generate in cash flow. For stocks, we like those with a high ratio of earnings to dividends.

We award additional marks to firms with little debt because balance sheets riddled with debt are riskier than those of less leveraged businesses. We measured each firm's reliance on debt by comparing its ratio of total-debt-to-total-equity against its peers in the same industry.

Value: Price/Book, Price/Cash Flow, Price/Earnings

On the value front we want to be able to buy lots of assets for a low price. So, higher grades went to firms with moderate-to-low price-to-book-value ratios. For trusts, we awarded the highest marks to those trading at low prices in comparison to their cash flow. We measured this a couple of ways, because while we wanted low price-to-cash-flow ratios in an absolute sense, we also wanted a trust's price-to-cash-flow ratio to be low compared to other trusts in the same industry. For stocks, we examined earnings instead of cash flow and gave high marks to stocks with low price-to-earnings ratios.

Before making a decision on the basis of our grades, you should make sure the firm's situation hasn't changed in some important way. Be sure to read all the latest press releases, regulatory filings, and recent newspaper stories to get up to speed on the most recent developments. Also, you should investigate the less tangible aspects of a trust or stock to determine if the numbers hide a gem in the rough or a modern haberdasher on the decline.

The best way to use our grades is as a starting point for your own research. Don't feel confined by our approach. Instead, look up the characteristics that mean the most to you. Like any screening strategy, the purpose of our ranking is to help you distill a sea of data into a few good ideas, which can then be investigated in more detail for your well-diversified portfolio.