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

MARKET OUTLOOK

We’re near-term cautious on equities, but remain optimistic in the long term based on secular trends toward owning risk assets. Our portfolio remains defensive with overweights in telecom, utilities and infrastructure. Stay the course with Canadian dividend-payers for the core of the portfolio, especially those in stable industries with predictable cash flows as the yield discrepancy between bonds and stocks remains at all-time highs. Continue with a high equity concentration.

A sustained increase in share prices broadly and especially in those with high sustainable yields is likely if rates remain depressed. Rate increases will probably be self-defeating in the absence of sustained inflation.

We’re looking to buy more economically-sensitive industrial and consumer stocks in a correction/recession funded by partial reductions in utility and infrastructure holdings, which performed well in 2019. We’re also looking to add U.S. exposure on a pullback in the S&P 500 amid Canadian dollar strength, a scenario which is materializing sooner than expected. Patience is required to capitalize on a profitable entry point. Our portfolio is already well positioned for a rotation back towards banks and energy after high-grading our energy holdings over the past five years.

TOP PICKS

NUTRIEN (NTR:CT)
Last purchased at $61.

Nutrien’s underlying businesses endured a difficult 2019. Floods, poor weather during the planting and harvesting season and tariffs are only part of what plagued the industry last year. Despite all of this, shares are relatively flat and the company is set now to have better years ahead as commodity prices and trade issues hopefully continue to improve. This is a long-term holding for me and I envision keeping it for multiple decades. They have a great management team and an opportunity set that can fuel an increasing dividend for many years.

FREEHOLD ROYALTIES (FRU:CT)
Last purchased at $7.25.

There are three reasons I’m positive on Canadian oil and gas producers this year. First, the geopolitical situation in the Middle East continues to deteriorate, especially as it relates to Iran. Crippling U.S. sanctions have resulted in more brazen and serious attacks abroad and the recent assassination of the second most powerful leader in Iran, Qassem Soleimani, only serves to escalate the situation further.

Second, U.S. shale producers have been forced into a more disciplined drilling outlook as capital has ceased to flow to the sector amid poor returns. Geological declines of shale wells brought on in the past five years will be difficult to overcome at the current rig count.

Finally, we’re expecting some long awaited positive news on crucial egress projects for Canadian producers this year, including the expected completion of Enbridge’s Line 3 replacement program as well as further progress on Trans Mountain and B.C. LNG. For all these reasons, I believe capital will flow toward Canadian energy producers in 2020, continuing a trend that began last fall. Only a small amount of investment capital is required to move these stocks significantly from current depressed levels. Freehold has not fully participated in the recent rally, boasts a 7 per cent yield and is likely to see a dividend increase in 2020. The company is very conservatively managed and with little debt, so it will likely hang in better on the downside if the outlook above does not materialize.

ALTAGAS (ALA:CT)
Last purchased at $19.50.

AltaGas has undergone a massive transformation in the past 24 months. We have suffered through a significant share price drop, added more shares at advantageous prices and feel there are several catalysts for the stock move higher in the next year and beyond. Asset sales of over $2 billion in 2019 exceeded the high end of guidance and significantly repaired the balance sheet. Lower interest costs, new revenue from the Ridley Island Propane Export Terminal, utility investment/rate case adjustments and further asset sales all have the potential to increase earnings year-over-year and get the attention of quantitative-focused investors. Additionally, the new management team has been proactively communicating a concise strategy for improving the existing utility businesses, which should begin to resonate with fundamental investors who may be looking for value in an otherwise expensive sector.

PAST PICKS: JAN. 15, 2019

MANULIFE (MFC:CT)

• Then: $20.86
• Now: $26.50
• Return: 27%
• Total return: 33%

TD BANK (TD:CT)

• Then: $ 69.33
• Now: $73.21
• Return: 6%
• Total return: 9%

NUTRIEN (NTR:CT)

• Then: $ 65.91
• Now: $ 60.78
• Return: -8%
• Total return: -5%

Total return average: 12%

WEBSITE: www.newhavenam.com