John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.
With waves of panic selling sweeping markets in recent days, many investors have been gripped by terror as they watch stocks plunge in value.
Not Norman Levine and Darren Sissons. They couldn't be happier. "We are rubbing our hands with glee," says Mr. Levine, managing director at Portfolio Management Corp.
He and fellow portfolio manager Mr. Sissons have been sitting on large amounts of cash in their clients' accounts and patiently waiting for just such a chance to pick up high-quality companies at attractive prices. "It looks like we will be getting that opportunity," Mr. Levine says. "No rush, though. This corrective phase may be with us for a while."
As buy-and-hold value investors with a long-term focus, they look for companies with low debt, strong cash-flow generation, high-quality management and a history of dividend hikes. They also try to buy companies when their share prices have been beaten up by an "overly bearish market view," which is why they're welcoming the recent bout of selling.
The firm, which serves high-net-worth individuals and families, has about $550-million under management. Here's a sample of Portfolio Management's current holdings. Remember to do your own due diligence before investing in any security.
Canadian National Railway Co. (CNR)
Aug. 25 price: $71.02, down $1.72
Yield: 1.8 per cent
Weakness in the energy and mining sectors has put the brakes on CN Rail’s stock, which has tumbled about 20 per cent from its February high. But far from losing faith in the stock, Mr. Levine sees the decline as a buying opportunity because, over the long run, he expects a recovery in commodity volumes shipped by “North America’s premier rail operator.” CN is a core holding because of its strong management and long history of dividend growth, and, after the recent pullback, the stock is trading at an attractive multiple of about 15.5 times estimated 2016 earnings.
Sun Life Financial Inc (SLF)
Aug. 25 price: $40.12, up 86¢
Yield: 3.8 per cent
In May, Sun Life raised its dividend for the first time since 2008, and Portfolio Management believes there are more increases to come. The insurer is well-diversified geographically, with operations in Canada, the United States, the United Kingdom and Asia, and it stands to benefit if bond yields rise. Moreover, Sun Life’s growing exposure to wealth management – which accounted for 45 per cent of underlying earnings in 2014 – complements the company’s insurance operations. The stock, which trades at just 11.6 times estimated 2015 earnings, “should be attractive for those seeking capital appreciation as well as dividend growth,” Mr. Levine says.
Open Text Corp. (OTC)
Aug. 25 price: $57.75, up $1.38
Yield: 1.8 per cent
Shares of Open Text – a recent addition to Portfolio Management’s accounts – have been hammered by slowing revenue growth, a strong U.S. dollar and the transition of its business software customers to the cloud. But the market is overestimating the company’s challenges, Mr. Levine says. Open Text will continue its growth-through-acquisitions strategy while moving more business to the cloud, although perhaps at a slower pace than investors had expected, he says. The shares, meanwhile, trade at an attractive multiple of about 12.5 times estimated earnings for the current fiscal year. Another positive sign: Since initiating a dividend in 2013, the company has raised its payment twice.
BB&T Corp. (BBT)
Aug. 25 price: $34.78 (U.S.), down 79¢
Yield: 2.9 per cent
Based in North Carolina, BB&T provides financial services including banking, lending, insurance and wealth management. It has a prudent risk-management culture backed up by a solid balance sheet and strong capital levels, Mr. Sissons says. And because of its presence in the U.S. southeast, “the company is well positioned to capture continuing recovery in Florida and neighbouring states that were particularly hard hit during the global financial crisis,” he says. The stock trades at a price-to-earnings multiple of less than 15, and the dividend has grown at a five-year annualized rate of about 12.5 per cent. “BB&T should continuing raising its dividend buoyed by a recovering southeast U.S. economy and higher interest rates,” Mr. Sissons says.
SGS SA (SGSN)
Aug. 25 price: 1,665 Swiss francs ($2,365.86 Canadian)
Yield: 4.1 per cent
Switzerland’s SGS – another recent purchase for the firm – is a global testing and measurement company. Its products are used in industries including energy, food, chemicals and consumer goods to ensure compliance with health, safety and regulatory standards. “SGS is a serial acquirer of small testing companies across the globe,” Mr. Sissons says. “It has a strong balance sheet and typically achieves annual single digit revenue growth.” In addition to raising its dividend at a five-year compounded growth rate of 2.5 per cent, the company has paid eight special dividends since 2003. “SGS is currently on sale due to overly negative concerns around its mining and energy exposure, which investors with longer-term investment time frames should look through,” Mr. Sissons says.