Ryan Bushell, president and portfolio manager at Newhaven Asset Management
Focus: Canadian dividend stocks

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MARKET OUTLOOK

Market breadth has expanded significantly of late, and it appears investors are finally starting to see the value embedded in certain Canadian dividend payers. I am closely following the U.S. political race as a change in government would have huge implications for the energy market, most of them very positive for Canadian producers and Canadian-listed renewables and utility providers with significant U.S. operations. A Biden/Harris White House with a Democratic-led Senate and House could significantly reshape policy as it relates to both US shale development (harder) and funding for renewables (up significantly). For Canadian oil and gas producers, although a change in government would almost certainly mean the end for Keystone XL, it also would mean less competition/supply from the U.S. shale.  On balance I think the reduced supply would outweigh the effect of a Keystone XL cancellation.  A governmental change would definitely be positive for Canadian utility and renewable power developers as it would accelerate spending to decarbonize electricity generation in the U.S. Given this is a global trend, I have been actively buying Canadian companies with a U.S. and Global renewable energy focus while holding a significant position in cross-border utility providers. This area now represents a maximum 20 per cent weighting in client portfolios. I strongly believe that these companies will see increased investment from institutional and retail investors over time, regardless of whether Trump is a one or two term president. We are still paid a significant dividend yield if the polls are wrong. I remain very nervous about the Nasdaq and see it as a bubble; however, I am willing to concede that when the discount rate is taken near zero it can have drastic upward effects on valuation ranges. Overall I remain cautious as we head toward a host of risks in the fall, but remain very positive on the longer term prospects for my infrastructure based portfolios with sustainable, long duration dividend income streams

TOP PICKS

Algonquin Power & Utilities Corp. (AQN TSX)  - Last purchased at $18

I have been patiently waiting to buy Algonquin Power over the past few years, and the combination of a CEO change and a weak quarter during the pandemic has finally presented the opportunity. I was very interested to see the deal they signed with Chevron which involves developing renewable assets to offset Chevron’s carbon-intensive operations. I think this will be a trend that continues and Algonquin is a first mover. Regardless, the 4.6 per cent dividend yield is well supported and poised to grow.

Aecon Group (ARE TSX) - Last purchased at $14

Aecon’s share price performance has been puzzling given the company’s strong fundamentals. Record backlog combined with a steadily growing dividend and a resilient business should be a solid investment thesis; however, the shares are sitting near a 5-year low, excluding March. Remember: there was a takeover offer on this company at $20 when they had backlog of just over $4 billion; they now have a backlog that exceeds $7 billion. If you take the view that their concessions on the Bermuda airport and Eglington LRT will eventually be of some value, then the shares are very attractive, especially with a growing 4.4 per cent dividend yield.

Telus (T TSX) - Last purchased at $24

Risks abound as we head into the fall, and so having some defensive companies in your portfolio makes a lot of sense. Despite increased competition from Shaw, Telus continues to post solid results and steady dividend growth. It has a 4.8 per cent dividend yield and catalysts including the possible monetization of Telus Health and/or Telus International in the next 12-24 months. I think investors will be well served by this entry point on Telus that is at least 10 per cent below where the shares would be valued absent COVID-19. Telus’ business remains resilient, with no media exposure and a more manageable capital expenditure profile relative to the other national carriers.

 

• Then: $22.56
• Now: $14.16
• Return: -37%
• Total Return: -32%

Arc Resources (ARX TSX)

• Then: $6.58
• Now: $ 6.80
• Return: 3%
• Total Return: 12%

CIBC (CM TSX)

• Then: $102.34
• Now: $96.97
• Return: -5%
• Total Return: 1%

Total Return Average: -6%
 

Website: www.newhavenam.com