National Bank reveals its top 27 dividend picks for 2017

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On Tuesday, National Bank Financial released it recommended list of 27 dividend investment ideas for 2017.

Broken down into 10 sector exposures, the 27 income-paying securities are highlighted below:

Power stocks

The forecasted total returns are impressive in this category with two stocks anticipated to deliver over 30-per-cent gains. Three stocks are highlighted in this category, Algonquin Power and Utilities Corp. (AQN-T), Capital Power Corp. (CPX-T), and Innergex Renewable Energy Inc. (INE-T).

Of the three securities, the stock with the greatest potential total return forecast is Innergex Renewable Energy Inc. Analyst Rupert Merer has a target price of $18, equating to a potential gain of 35 per cent. The analyst noted the company's "stable business model with relatively low risk". The dividend yield is currently 4.7 per cent.

The expected gain for Algonguin Power and Utilities is also stellar. APUC provides rate regulated utilities such as water, electricity, and natural gas utility services to its customers. Analyst Rupert Merer has a target price of $14.50, implying a potential total return of 33 per cent, which includes a sustainable dividend, yielding over 5 per cent. The analyst estimates that the payout ratio will be 52 per cent in 2017.

Analyst Patrick Kenny forecasts a potential total return of nearly 25 per cent for Capital Power, which includes an attractive dividend, yielding over 6 per cent. His target price is $29. The analyst indicates there is potential, "20 per cent bluesky upside" from "new renewables and gas-fired investment required in Alberta by 2030".

Real estate securities

First off, in the real estate sector, there are seven securities identified.

American Hotels Income Properties (HOT.UN-T) is a recommended security by analyst Trevor Johnson. He has a target price of $12.50, implying a potential total return of 28 per cent.

American Hotel Income Properties REIT LP, or AHIP, has a portfolio of hotel properties located across the United States and is focused on owning and acquiring hotels in secondary markets that are located in high traffic areas in close proximity to transportation, such as railroads, airports, and highways. Its portfolio is divided into two segments, railroad hotels and branded hotels. Railway hotels have an attractive feature – lodging contracts spanning over a number of years in which rail guestrooms are guaranteed. The yield is attractive at 8 per cent. The AFFO (adjusted funds from operations) payout ratio is forecast at 73 per cent based on his 2017 estimate. His FFO (funds from operations) per unit estimate is 95 cents (U.S.) in 2016, rising to $1.03 in 2017. His AFFO per unit forecasts are 83 cents for 2016 and 89 cents for the following year.

Analyst Matt Kornack, has an "outperform" recommendation on H&R REIT (HR.UN-T). He notes the attractive yield of 6 per cent, conservative AFFO payout ratio of 82.5 per cent, and the REIT's reasonable valuation, with the units trading at a discount to its net asset value. His FFO per unit estimates are $1.83 in 2016, $1.85 in 2017 and $1.96 in 2018. His target price of $25.75 implies a potential total return of 21 per cent.

Analyst Dawoon Chung forecasts a total return of 21 per cent for Killam Apartment REIT (KMP.UN-T). Halifax-based Killam, operates a portfolio of multi-family apartments and manufactured home communities. The company has operations in Alberta, Ontario, New Brunswick, Newfoundland, Nova Scotia, and Prince Edward Island. The analyst noted Killam's market leadership in Atlantic Canada and stated,: "According to the Conference Board of Canada, in 2017 Halifax is expected to be the third fastest growing metropolitan area from a real GDP standpoint at 2.5 per cent." The yield is 5 per cent and the AFFO payout ratio is 74 per cent based on the analyst's 2017 estimate. The analyst forecasts FFO per unit growth of 3 per cent in 2017.

Analyst Matt Kornack has an 'outperform' recommendation on Pure Industrial Real Estate Trust (AAR.UN-T) with a target price of $6, and total return of 13-per-cent forecast. This includes the yield of over 5 per cent. The upside potential is limited relative to his other recommendations. He notes that the REIT is trading close to its net asset value.

For investors wanting exposure to the U.S. market, Mr. Kornack recommends Pure Multi-Family REIT (RUF.UN-X). Pure Multi-Family holds a portfolio of U.S. multi-family real estate assets. His target price is $7 (U.S.), suggesting a potential total return of 13.5 per cent, which includes a yield of approximately 6 per cent. He notes the distribution is paid out in U.S. dollars and the AFFO payout ratio is 86 per cent based on his 2017 forecast. In addition, the REIT trades at roughly a 6-per-cent discount to its net asset value.

Analyst Trevor Johnson sees a "favourable combination of income and growth" for unitholders of SmartREIT (SRU.UN-T). He has a target price of $36, implying a total return of 18.8 per cent, including a distribution yield of over 5 per cent. He believes a premium valuation is warranted for this REIT given its "concentration of Walmart locations, near full occupancy, deep development pipeline, sustainable yield and aforementioned capacity for further distribution increases."

Mr. Johnson recommends WPT Industrial REIT (WIR.U-T). He has a target price of $13 (U.S.), suggesting a potential total return of 15 per cent. He said: "WPT is the only Canadian REIT offering investors exclusive access to the U.S. industrial space." He added: "The REIT's portfolio remains nearly fully occupied at approximately 99 per cent, while its top 10 tenants are comprised of key e-commerce players including Amazon and Zulily." The REIT offers unitholders a monthly distribution of 6.33 cents (U.S.) per unit.

Energy sector

Three stocks are recommended in this sector. Let's beginning with the stock with the highest forecast gain.

Analyst Rupert Merer has an impressive 40-per-cent projected total return for shares of Pattern Energy Group (PEG-T). His target price is $26 (U.S.). The company offers shareholders a compelling dividend yield of over 8 per cent. He notes the company's defensive attributes, stating "PEGI is comprised of wind assets, primarily in the United States which have an average PPA (power purchase agreement) length of about 14 years. Approximately 90 per cent of generation is under fixed-price PPAs with credit worthy off-takers."

Next up is Vermillion Energy Inc. (VET-T) with a forecasted total return of 27 per cent, which includes a dividend yield of approximately 4.8 per cent. Analyst Travis Wood has a target price of $66. He believes the company can "deliver a five-year production compound annual growth rate of 9.5 per cent."

Analyst Greg Colman recommends Pason Systems Inc. (PSI-T). The analyst has a target price of $22.50, implying a potential total return of 17 per cent. It offers investors a dividend yield of over 3 per cent. While the current payout ratio is above 100 per cent, the analyst is forecasting a payout ratio of 86 per cent in 2017.

Pipeline/Utilities

Analyst Patrick Kenny has two picks in this segment, Keyera Corp. (KEY-T) and Veresen Inc. (VSN-T).

He has a target price of $49 on Keyera, implying a potential total return of over 28 per cent, including a yield of 4 per cent. He is forecasting the dividend to expand by 8 per cent per year from mid-2017 through mid-2019.

Veresen offers investors a dividend yield over 7 per cent. He remarked: "Although we do not forecast any dividend upside through out forecast, we highlight a significantly improved long-term dividend sustainability picture." He has a target price of $17, suggesting a potential total return of over 33 per cent.

Infrastructure

Analyst Maxim Sytchev has an "outperform" recommendation on Bird Construction Inc. (BDT-T) with a target price of $12, implying a potential gain of 36 per cent. In November, the company announced a 48.7-per-cent cut to its monthly dividend, trimming it to 39 cents per share annually from 76 cents per share. The analyst said: "While it feels like we are trying to catch a falling knife here, we want to urge investors to once again take a look at the company's balance sheet: as of Q3/16 the company had $4.48 in net cash."

Analyst Rupert Merer recommends Brookfield Infrastructure Partners (BIP.UN-T) to income investors. He has a target price of $38 (U.S.) and total return forecast of 11 per cent. The security is an attractive investment for conservative investors seeking reliable income given, "approximately 90 per cent of BIP's assets are regulated or contracted, providing longer-term cash flow stability. BIP also has about 70 per cent of its revenue indexed to inflation." The stock offers investors a yield of over 4 per cent.

Telecom

Analyst Adam Shine has a conservative gain forecast for shares of Rogers Communications Inc. (RCI.B-T), calling for a potential total return of over 12 per cent. He anticipates dividend hikes will resume, potentially in the second half of this year. The yield is currently over 3 per cent. The stock's valuation also has the potential to expand. Shares of Rogers currently trade a discount relative to its peers BCE, Telus and Shaw. His target price is $62.

Transportation

Analyst Trevor Johnson targets a 30-per-cent total return for shareholders of Exchange Income Corporation (EIF-T), noting the company's potential to complete future accretive acquisitions. His target price is $50. The dividend yield is over 5 per cent.

Analyst Greg Colman favours Student Transportation Inc. (STB-T) and has a target price of $8.50, implying a total return of 24 per cent. The dividend yield is very attractive at 8 per cent, paid in U.S. dollars, and sustainable according to Mr. Colman. He forecasts the payout ratio will dip to 53 per cent in fiscal 2017, down from 70 per cent in fiscal 2016.

Financial stocks

Turning to the financial sector, analyst Jaeme Gloyn highlighted three stocks: First National Financial Corp. (FN-T), MCAN Mortgage Corp. (MKP-T), and Timbercreek Financial Corp. (TF-T).

Total return expectations for MCAN Mortgage and First National are both conservative as the analyst views the share prices as fully valued. For MCAN, the analyst's target price is $14.50, suggesting a potential total return of 5 per cent, driven by its yield. For First National, the analyst has a 3-per-cent total return forecast and target price of $28. However, the analyst notes the dividend yield is attractive at 5.9 per cent, and the payout ratio is approximately 59 per cent in 2017.

The analyst is currently restricted on Timbercreek Financial given its recently announced $40-million bought deal offering, so no target price is provided. However, the analyst suggests the attractive yield of over 7 per cent is sustainable with room to grow.

Industrial

Analyst Greg Colman is currently restricted on Ag Growth International Inc. (AFN-T) given its recent $60-million bought deal equity financing, and, as a result, he cannot disclose his target price.

Diversified category

Lastly, in the diversified category are three securities.

Enercare Inc. (ECI-T) is covered by Trevor Johnson. He has a target price of $22.50, implying a total return of 26 per cent, which includes a 5-per-cent dividend yield. Toronto-based Enercare provides water heaters, furnaces, air conditioners and HVAC (heating, ventilation, and air conditioning) rental products, as well as services such as protection plans to its customers. In addition, EnerCare owns EnerCare Connections, a leading sub-meter provider for apartments and condominiums, and through its Triacta division, manufactures sub-meters. Enercare has operations in across North America. The analyst believes further expansion in the U.S. represents a growth opportunity for the company.

Analyst Leon Aghazarian recommends shares of industry leader, KP Tissue Inc. (KPT-T) to income investors. KP Tissue manufactures and markets tissue products, such as bathroom tissues, facial tissues, and paper towels under popular brands such as Cashmere bathroom tissue, Purex bathroom tissue, Scotties facial tissues, White Swan, and White Cloud. He has a target price of $18, implying a potential total return of 21 per cent. The stock offers investors a dividend yield of approximately 4.7 per cent.

Rounding out the list is Crius Energy Trust (KWH.UN-T). Analyst Trevor Johnson has a target price of $10.50, implying a potential total return of 27 per cent and offering investors a yield of over 8 per cent. The analyst believes the valuation is cheap on a price-to-cash flow basis, with room for multiple expansion.