Market volatility is expected to persist this year as policymakers in emerging and developed economies try to stabilize growth and inflation. Recent comments by the Federal Reserve have investors reducing their expectations of future rate hikes, prompting a further U.S. dollar decline and a rally in risker assets including commodities and high yield bonds.  Although weakness in the greenback and higher oil prices should take some of the downward pressure off earnings, profits still face headwinds from weak global economic activity.  While the inflection in sentiment is welcome, we believe investors should position themselves into high quality dividend payers in North America and Europe for the remainder of the year.  

TOP PICKS:

Groupe Eurotunnel (GETP.PA) 

GETP is a French company, whose main asset is the Chunnel rail link concession, which is in place until 2086.  The Company generates revenue primarily based on passenger and freight train movements that travel through the tunnel.  At present, the only rail connection in operation runs between Paris and London.  The stock has come under pressure in recent months because: (1) investors grew concerned about train volumes through the Chunnel as a result of the migration crisis which disrupted freight trains last summer, and (2) the November Paris attacks which were perceived to reduce passenger travel to that city.  The Company has fully resolved the migrant issue with the construction of an improved barrier system and has not had any disruptions to traffic since October 2015.  Further, in Q4, while there were some small reductions in passenger volume, it was much lower than many investors expected.  Looking into 2017 and beyond – the Company will be adding new rail routes through the Chunnel, including Amsterdam-London and potential routes into Germany or elsewhere.  These new revenues are high-margin so, given the fixed cost structure of the Company, they are expected to be a significant driver of very healthy dividend growth. 

Crescent Point Energy (CPG.TO)

Recently purchased early March $17.95

Recent dividend adjustment saves Crescent Point approximately $430 million per year and positions the Company as one of the most sustainable oil weighted producers in Canada; the Company’s all-in payout ratio drops to 85% in 2016 and 90% in 2017. Crescent Point’s increasing shift towards water-flood oriented assets should extend its reserve life, improve efficiencies and lower the corporate decline rates. The Company offers good risk adjusted exposure to recovering oil prices given its lower cost structure (~$20/bbl) and lighter gravity oil production mix. 

Tourmaline Oil (TOU.TO)
Tourmaline is a low cost, top tier producer with a significant footprint in the Deep Basin. The Company benefits from owning most of its own processing infrastructure which allows to control the pace of development and keep costs down. Tourmaline will continue to capitalize on strategic acquisition opportunities going forward; it’s recent $183 million acquisition of Ansell assets (4,700 BOE/d) from Enerplus is a great example of this. Pro forma it’s recent $244 million equity raise, the Company will have a very conservative balance sheet at less than 2x debt to 2016 cash flow. Tourmaline offers a defensive way to play a medium term improvement in gas prices as the Company generates strong free cash flow at strip prices (87% all-in payout) while demonstrating debt adjusted per share growth in 2016 of 20%.

Past Picks: Feb. 5, 2015

TORC Oil & Gas (TOG.TO)

NuVista (NVA.TO)

Tourmaline (TOU.TO)

Total Return Average : -26.60%