Ryan Bushell, president and portfolio manager, Newhaven Asset Management
FOCUS: Canadian dividend stocks
MARKET OUTLOOK:
Equity markets remain volatile and the rally over the summer seems to be rapidly coming to an end. In my opinion, this is justified by the fundamental data including inflation, consumer confidence and global purchasing manager indexes. I am very cautious about the next 12-24 months, depending on the path of interest rate policy as the key factor amidst a host of uncertainties. If we assume the U.S. Federal Reserve and other central banks do not ease interest rates next year (my base case), I believe equities are going lower, simple as that.
Any weakness that occurs over the next 12 months should be a welcome sign for long-term investors looking to put cash to work at rates that can exceed inflation, a much more difficult task these days. We continue to favour providers of essential needs with a focus on infrastructure investments that facilitate the ongoing energy transition driven by climate and geopolitical factors. This positioning has worked very well over the past 18 months with significant outperformance relative to major equity benchmarks.
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TOP PICKS:
Most Recent Purchase $46.50
Pembina remains in a very strong position as a major infrastructure provider in Canada’s burgeoning natural gas sector. With the leadership transition behind it, the company appears even more focused and opportunities abound, especially with LNG Canada now clearly visible on the horizon later this decade. The KKR deal shows that the company has firm access to capital and the 5.5 per cent dividend yield alone should provide enough return to outpace longer-term inflation.
Most Recent Purchase $10.50
Aecon’s most recent quarter was a washout event for the company after years of consistent results. The write-downs on fixed price contracts entered into during a much different inflation environment were painful, but are likely to be substantially recovered in the coming quarters. New contracts are likely to be priced in a more flexible and even advantageous fashion. Longer-term, the company has significant nuclear expertise should the world continue to progress down a path of “renuclearization” and remains one of the few companies qualified for major infrastructure projects within this country. At current prices, the shares yield nearly seven per cent and patient investors are very likely to be rewarded by purchasing below $11.
Most Recent Purchase $18.00
Algonquin has an admirable combination of renewable power development opportunities with a base business of regulated utilities that are both poised to prosper in the coming decades. The share price has been consolidating below $20 for some time now as recent acquisitions are digested. The five per cent dividend yield is attractive while we wait for the potential to be realized over a decade or more.
PAST PICKS: August 26, 2021
TC Energy (TRP TSX)
- Then: $59.21
- Now: $62.71
- Return: 6%
- Total Return: 12%
Freehold Royalties (FRU TSX)
- Then: $9.32
- Now: $14.45
- Return: 55%
- Total Return: 66%
Shaw Communications (SJR.B TSX)
- Then: $36.99
- Now: $33.87
- Return: -8%
- Total Return: -5%
Total Return Average: 24%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| TRP YSX | Y | Y | Y |
| FRU TSX | Y | Y | Y |
| SJR.B TSX | Y | Y | Y |
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