John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.
Buying good companies when their shares are in the doghouse can be a profitable investing strategy.
But finding worthy candidates can be a challenge when the market is surging.
That's where this edition of Yield Hog comes in.
I've identified three dividend stocks whose shares have been lagging the market for one reason or another. All have solid records of dividend growth, good cash flow generation and an above-average yield.
I'm not saying these stocks – all of which I own personally – are suddenly going to pop in price. They could languish for a while. But I expect they will continue rewarding investors with dividend increases and – eventually – capital gains. In the meantime, they pay you to wait.
Rogers Communications
Yield: 4.3 per cent
Price: $42.98
Rogers is arguably one of the most hated companies in Canada – both by customers and, lately, by investors. In the past year, the shares have skidded about 11 per cent, including dividends, even as the S&P/TSX Composite Index has soared 22 per cent.
The bearish sentiment is understandable. Rogers is facing intense competition, its cable business is shrinking and the number of wireless customers barely grew in the first quarter. When results missed expectations earlier this month, the stock tanked.
The silver lining? Rogers's dividend yield is now at a record high, and the price-to-earnings ratio of 13.5 is only slightly above the five-year average of 13.4, according to Bloomberg. Looking ahead, management intends to reduce wireless promotional activity, which should help margins, and it's vowing to improve Rogers's notoriously sketchy customer service. New CEO Guy Laurence is also aiming to reinvigorate growth.
For all its short-term struggles, Rogers remains well positioned to benefit from long-term growth in the wireless business and its dividend will almost certainly continue to rise.
Fortis
Yield: 4 per cent
Price: $32.02
Fortis's stock has gone basically nowhere since 2010 as investors fretted about the utility operator's sluggish growth and the potential impact of higher interest rates. Yet the company has continued to raise its dividend every year and its earnings could be poised to grow.
From 2014 through 2018, Fortis plans to make more than $6.5-billion in capital investments, principally in Western Canada. These include the Waneta Dam hydroelectric project and the expansion of a liquefied natural gas facility, both in British Columbia, and investments in Alberta's electricity network.
On the acquisition front, Fortis has snagged a pair of U.S. utilities – one in New York State and the other in Arizona – that will add about one million customers, bringing Fortis's total customer base to about three million.
For conservative investors, Fortis is attractive because about 90 per cent of its assets are regulated. That provides predictable cash flows and insulates the company from economic swings. Fortis won't make you rich overnight; what it will provide is a steady source of dividend income that grows modestly.
Pizza Pizza Royalty Corp.
Yield: 6 per cent
Price: $13.30
The Pizza Pizza down the street from my house is always packed with teenagers at lunch time. While I don't particularly like finding discarded pizza crusts on my front lawn, as a shareholder I do enjoy watching Pizza Pizza's dividend rise. The increase announced in January was the fourth in less than two years, and it helped to push the shares to record highs.
Lately, however, the piping hot stock has cooled off.
Since hitting a record of $14.04 in February, the shares have slipped more than 5 per cent. Because trading volume is thin – averaging about 21,000 shares a day – it doesn't take much to move the price. If you can live with volatility, Pizza Pizza will probably continue serving up dividend hikes as long as the chain can keep its same-store sales growing.
Judging by the lineups at lunch time, that won't be a problem.
John Heinzl