Douglas Kee, Chief investment officer for Leon Frazer & Associates.Market Call
Douglas Kee is chief investment officer at Leon Frazer & Associates. His focus is Canadian dividend-paying stocks.
Top Picks:
Canadian National Railway Co. (CNR.TO)
CN shares have traded down from a $88.00 high this year to a low near $72. Like other rails, the company has suffered from lower volumes in coal, grain and energy sectors. CN has maintained earnings guidance of an 8-per-cent to 10-per-cent increase this year based on inflation plus price increases and good operating metrics. While the current yield of 1.6 per cent is low CNR increased its dividend by 25 per cent this year and has increased it by 13 per cent per annum over the last 5 years.
Bank of Nova Scotia (BNS.TO)
Scotiabank shares have traded down from the $67 level earlier this year on margin compression fears, potential rising loan losses from the energy sector and a more challenging retail banking outlook in Mexico and Latin America. Scotiabank's new management team has taken action to enhance cross sell opportunities in Canadian retail and wealth management, and has taken action on the international side to cut costs and buy assets to improve profitability. The current yield of 4.2 per cent is attractive and BNS has increased its dividend 3 per cent this year with the potential for another increase by year end.
Pembina Pipeline (PPL.TO)
Pembina Pipeline is currently yielding 4.6 per cent, has increased its dividend by 5 per cent in 2015 and we would expect dividend increases of 3 per cent to 5 per cent over the next few years. The company is in the midst of a $5.9-billion committed capex program which will see EBITDA double by 2018 and see product margin/frac spread exposure decline from 36 per cent of EBITDA to 18 per cent by 2018. The great majority of the capex program is backstopped by fee-for-service or cost-for-service contracts.
Past Picks: May 7, 2014
Cenovus Energy (CVE.TO)
Then: $31.73; Now: $18.61; -41.35%; Total return: -38.10%
Fortis (FTS.TO)
Then: $32.46; Now: $38.36; +18.18%; Total return:+23.74%
Rogers Communications (RCIb.TO)
Then: $44.17; Now: $44.82; +1.47%; Total return: +7.05%
Total Return Average: -2.44%
Market outlook:
Year-to-date Canadian and U.S. equity markets are a little better than flat, including income. Markets have been challenged by modest global economic growth, the threat of higher interest rates, and a soft earnings outlook. For the TSX, the market has been trading in a range of 15,400 to 14,200, testing the lower end recently. We are cautiously optimistic that 2016 will be a better year for earnings growth and that this will be reflected positively in equity prices. We remain committed to companies that provide a current yield and the expectation of rising dividends.