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

MARKET OUTLOOK

The strong performance of the TSX (up 9 per cent) and the Canadian dollar (up 5 per cent) in Q4/20 has continued into the first days of 2021. Despite surging COVID-19 case counts, renewed lockdowns and continued political uncertainty, investors are plowing ahead as the prospect of an effective vaccine combined with additional government stimulus and non-existent, risk-free rates have made the fear of missing out greater than the fear of remaining invested. Given the fragile balance of risk and reward at present, we look to the dividend yield of our Newhaven portfolios, which is in excess of 4.5 per cent and more than six times the comparable risk-free rate, as our guidepost to remain invested. We feel confident investing our clients’ hard-earned capital primarily in sustainable infrastructure providers that can maintain and increase dividends consistently at a time when certain parts of the market look frothy and safer alternatives offer a negative real return.

TOP PICKS

Enbridge (ENB TSX) Most recent purchase $42

Energy infrastructure holdings were among the worst performers in the portfolio in 2020 despite very little impact to their businesses or future growth plans from the pandemic. The drumbeat to eliminate from portfolios companies involved in the production and distribution of fossil fuels grows louder each year and 2020 was an easy year to ignore the sector. At the same time, energy demand continues to steadily grind higher and is likely to see a strong resurgence on the back of the COVID-19 pandemic. Enbridge finally got approval for its Line 3 replacement project through Minnesota in Q4 and this is likely to be the fastest completed piece of infrastructure in history. The stock is poised to retrace higher as confidence returns and investors gravitate back to the sector. Enbridge recently approved a modest 3 per cent increase to the dividend in Q4 and the dividend yield remains close to 8 per cent.

Shaw Communications (SJR/B TSX) Most recent purchase $22.50

Shaw Communications has been weak lately along with most of the Canadian telecom stocks. The dividend yield has crept up above 5 per cent and the company has several embedded catalysts including the rollout of Shaw Wireless in Western Canada, the ability to buy discounted spectrum in the next auction and the possibility of being acquired in a takeover with the passing of patriarch J.R. Shaw in 2020. Patient investors could tuck some Shaw away today, collect the 5 per cent yield and see what happens with the company in the next few years.

Algonquin Power (AQN TSX) Most recent purchase $20.50

Algonquin remains my favourite way to gain exposure to renewable power development at present given how other companies in the sector have appreciated in the last six to nine months. Although Algonquin has a large regulated utility business, they should see their renewable power business grow faster over the next decade and attract more attention to the company. The dividend yield sits at just under 4 per cent at present and is likely to grow in the mid to high single digits per year for the foreseeable future. There is more capital directed to investments in renewable power every year and this is likely to accelerate on the back of the pandemic as governments look for ways to stimulate their respective economies.

PAST PICKS: JAN. 6, 2020

Nutrien (NTR TSX)

•  Then: $61.30
•  Now: $64.72
•  Return: 6%
•  Total Return: 10%

Freehold Royalties (FRU TSX)

•  Then: $7.59
•  Now: $5.52
•  Return: -27%
•  Total Return: -23%

AltaGas (ALA TSX)

•  Then: $19.79
•  Now: $19.12
•  Return: -3%
•  Total Return: +2%

Total Return Average: -4%

Website: www.newhavenam.com