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Douglas Kee, Chief investment officer for Leon Frazer & Associates. (Market Call/File photo)
Douglas Kee, Chief investment officer for Leon Frazer & Associates. (Market Call/File photo)

BNN MARKET CALL

Three top stock picks from Leon Frazer’s Douglas Kee Add to ...

Douglas Kee is chief investment officer at Leon Frazer & Associates. His focus is on Canadian dividend-paying stocks.

Top Picks:

Fortis Inc. (FTS TSX)

Fortis currently yields 3.8 per cent and has increased its dividend by 4 per cent annually over the last 5 years. For 2015 we are expecting double digit earnings growth due to the closing of $4.2-billion UNS acquisition in Arizona and the completion of the Waneta dam expansion in B.C. Over the next couple of years we expect that dividend growth should be above average and that Fortis will continue to expand its U.S. footprint.

Crescent Point Energy (CPG TSX)

Crescent Point Energy currently yields 6.3 per cent with an all-in payout ratio down from 140 per cent to an expected 105 per cent next year. The company has a disciplined management team that maintains a conservative balance sheet, aggressively hedges production, concentrates on a limited number of light oil plays and grows production primarily through land development and recovery enhancement.

Sun Life Financial (SLF TSX)

Sun Life currently yields 3.5 per cent with a current payout ratio of about 50 per cent, still near the top of the company’s stated range of 40 per cent to 50 per cent. We are expecting core earnings growth in the low double digits due to strength in the Canadian insurance business and a rising contribution from its wealth management business MFS. A dividend increase later in 2015 is a strong possibility.

Past Picks: August 15, 2013

Bank of Nova Scotia (BNS TSX)

Then: $58.13; Now: $72.12 +24.07%; Total return: +28.98%

Cenovus Energy (CVE TSX)

Then: $29.23; Now: $34.09 +16.63%; Total return: +20.54%

Pembina Pipeline (PPL TSX)

Then: $32.61; Now: $52.36 +60.56%; Total return: +68.29%

Total return average: +39.27%

Market outlook:

Coming into the summer we had expected a consolidation which we viewed as a positive but the TSX continued up 7 per cent in the last three months. At current levels, the market is above our forecast for the year and is trading at about 17 times 2014 earnings. While earnings growth has been better than expected, a modest correction would not be a surprise. The U.S. markets have lagged, given strength in Canadian banks and the energy sector. Looking forward, we would expect that the energy sector will continue to outperform given sound supply/demand fundamentals and that an improving global economy will boost demand for materials. Generally, Canadian materials companies are running at cost of production, concentrating on cost containment and in some cases providing attractive current dividend yields.

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