Ryan Bushell, president of Newhaven Asset Management
Focus: Large-cap Canadian dividend stocks

MARKET OUTLOOK

2018 was a trying year for financial markets, as almost every asset class in every market around the world was down (excluding cash, which was the top performer). The turning of the calendar doesn’t stop the storm and 2019 will likely start out in similar fashion. I expect the clouds to clear as the year progresses though, given that back-to-back negative years for the markets at large are an extremely rare event and even rarer for a portfolio of quality dividend payers, which I construct for my clients. The cleansing of risk appetite in Q4 is necessary for markets to function properly and should be viewed as a positive event in the bigger picture. It’s comforting to know that over the past 61 years the Canadian market has registered only 18 negative calendar years of performance (30 per cent) and only had back-to-back negative years twice. The average return for the market following any negative year has been over 17 per cent historically, a positive signal for 2019. I believe 2019 is setting up similarly to 2016 for the TSX, where an oil price recovery and steady economic progress sets up well for the energy and financial sectors, which comprise more than 50 per cent of the TSX.

TOP PICKS

Manulife suffered through a rough 2018 as bond yields went on a round trip and equity markets declined. Additionally, a lawsuit from a U.S. hedge fund and subsequent short-seller report hurt the shares in Q3. Fundamentally, the company continues to make progress under the new leadership team. They increased their dividend over 20 per cent last year and the stock now yields nearly 5 per cent. I expect another dividend increase in 2019 and for investors to come back to the company, which is now trading at book value.

TD BANK (TD.TO)
Most recent purchase at $68.

Last fall, I was recommending Scotia as the undervalued bank and since the beginning of October it’s up 7 per cent while TD is down 23 per cent. The premium valuation of TD has shrunk dramatically over that time and is at the low end of the historical range. I think investors are getting an excellent chance to buy the best Canadian bank at a very reasonable price. The performance of the sector has surprised me over the past three months as strong results were met with relative underperformance. Currently with 2019 estimated price earnings ratios below 10 times a lot of bad news is priced in. Good news could power a multiple expansion like we saw in 2016. In the meantime dividends will be increased and TD has the most capacity to raise, given their about 40 per cent payout ratio.

NUTRIEN (NTR.TO)
Most recent purchase at $65.

There’s been increased interest in the materials sector following two significant acquisitions in the gold space this month. Nutrien is a company that will participate in greater sector momentum and is now the largest remaining Canadian materials company by market cap. Underlying fundamentals for fertilizer remain stable and the company’s significant retail operation and sale of investment stakes have generated cash for further investment and dividend growth. This is a company I plan on holding through the cycles in what can be a volatile sector and I think the current price represents a decent buying opportunity.

PAST PICKS: JAN. 4, 2018

ALTAGAS (ALA.TO)

AltaGas endured a very difficult 2018. Their acquisition of WGL holdings has not been well received in the short term as the leverage from the transaction put the company under pressure to sell assets to preserve their balance sheet. A dividend cut was prudent in light of recent share price performance, although the extent of the cut wasn’t necessary in my opinion. The company hired a new CEO who I feel is a good fit for the organization given that he has significant U.S. utility experience, where more than 50 per cent of AltaGas’ assets are now located.

• Then: $29.12
• Now: $13.98
• Return: -52%
• Total return: -47%

NORTHLAND POWER (NPI.TO)

Very steady execution from this company and a solid dividend yield resulted in a decent 2018. We look forward to future project announcements in Asia as well as continued dividend increases to continue to push the stock higher.

• Then: $23.11
• Now: $22.49
• Return: -3%
• Total return: 3%

MANULIFE FINANCIAL (MFC.TO)

• Then: $26.76
• Now: $20.61
• Return: -23%
• Total return: -20%

Total return average: -21%

WEBSITE: newhavenam.com
LINKEDIN: Ryan Bushell