Rebecca Teltscher, portfolio manager, Newhaven Asset Management

FOCUS: Canadian dividend stocks 


MARKET OUTLOOK:

Our portfolio has remained extremely conservative and defensive despite market optimism this year. We are extremely cautious in the near/medium term as we see several signs of an economic downturn. The perceived strength of the consumer is showing signs of weakness as saving rates have come down, credit balances are up and total retail spending is slowing. We’ve seen many retailers in the U.S. and in Canada bring down their guidance for the rest of the year amid a more cautious and cash-strapped consumer.

The big surprise this quarter came with Canadian bank earnings a few weeks ago in which most large banks revealed signs of credit deterioration through higher impaired provision for credit losses (PCLs). Finally, last week the Band of Canada cut interest rates 25 bps to 4.75 per cent as economic growth and inflation continue to ease in Canada. As many homeowners renew their mortgages in the next 12-24 months, the risk of defaults will rise substantially unless the Bank of Canada continues to lower rates, reducing the price shock upon renewal.

While it doesn’t look so great for the overall economy, we are extremely comfortable with our portfolio positioning. We remain overweight in utilities, telcos, pipelines and other critical infrastructure that cannot easily be replaced or replicated. These sectors are generally resilient during economic uncertainty and should also experience a tailwind as interest rates continue to ease.

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TOP PICKS:

Rebecca Teltscher's Top Picks

Rebecca Teltscher, portfolio manager at Newhaven Asset Management, discusses his top picks: Pembina Pipelines, BCE, and Northland Power.

Pembina Pipelines (PPL TSX)

Pembina is in a strategic position to capture volume growth out of Western Canada as construction for export pipelines such as TransMountain and Coastal GasLink nears completion. Over 80 per cent of Pembina’s cash flows are contracted or fee for service resulting in limited commodity exposure. Current fee-based EBITDA (earnings before interest, taxes, depreciation and amortization) covers the dividend which continues to grow annually. Pembina has a strong history of project execution, and we expect that trend to continue with current capex projects such as the Cedar LNG (FID expected this June).  We like Pembina’s assets and positioning in the Western Canadian Sedimentary Basin, their attractive valuation as well as its significant dividend yield of 5.5 per cent.

BCE (BCE TSX)

Telcos have continued to lag the market as interest rates remained elevated through 2023 and 2024. However, with a long-term time horizon, we believe there is an opportunity to own BCE at an attractive valuation, a high dividend yield along with defensive characteristics making it a solid investment at any point in the economic cycle. As we enter a slower revenue environment, BCE is well equipped to realize cost efficiencies and a scale advantage. BCE is over the hump with its continued fiber to the home investment and we should see capex come down over the next few years. Current free cash flow supports the dividend and as capex begins to taper off, we should see an easing of the payout ratio as well as a de-levering of the balance sheet.

BNN Bloomberg is owned by Bell Media, which is a division of BCE.

Northland Power (NPI TSX)

Many utilities and power producers outperformed the market last quarter as the increase in power demand now resonates with the market amid all the growth that we’ve seen in the power-intensive AI space. However, Northland Power has lagged behind its peers as it currently faces execution risk on the three large projects that are currently under construction.

As management continues to provide positive project updates, value in the stock should unlock and investors will feel more comfortable owning the name. Northland has a strong record of execution with previous large projects and we feel confident in the team’s ability to continue the trend. In the latest conference call, management indicated that all three projects remain on schedule and within budget and should come online by 2027.

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
PPL TSX Y Y Y
BCE TSX Y Y Y
 NPI TSX Y Y Y

 

PAST PICKS: FEBRUARY 5, 2024

Rebecca Teltscher's Past Picks

Rebecca Teltscher, portfolio manager at Newhaven Asset Management, discusses his past picks: CAE, Brookfield Infrastructure Partners, and Emera.

CAE (CAE TSX)

  • Then: $26.45
  • Now: $25.34
  • Return: -4%
  • Total Return: -4%

Brookfield Infrastructure Partners (BIP.UN TSX)

  • Then: $42.03
  • Now: $39.10
  • Return: -7%
  • Total Return: -4%

Emera (EMA TSX)

  • Then: $47.67
  • Now: $47.31
  • Return: -1%
  • Total Return: 1%

Total Return Average: -2%

 

DISCLOSURE PERSONAL FAMILY PORTFOLIO/FUND
CAE TSX Y Y Y
BIP.UN TSX Y Y Y
EMA TSX Y Y Y