Thursday’s TSX breakouts: This dividend stock benefits from rising rates; has 13 'buy’ calls

Equity markets continue their 'rally and recede' trading actions, characterized by choppy daily trading action with the net effect of sideways market moves over the past few months.

It may be a quiet day in the markets today, with little traction. Markets look to open slightly lower with buyers sitting on the sidelines awaiting Friday's U.S. non-farm payrolls report.

To recap, on Wednesday, the Dow Jones Industrial Average climbed 0.62 per cent, the S&P 500 Index advanced 0.43 per cent, and the Nasdaq composite index rallied 0.50 per cent.

In Canada, the S&P/TSX composite index gained 90 points, or 0.62 per cent to close at 14,611. Strength in energy stocks fuelled the Index higher, while weakness was seen in dividend stocks and interest-sensitive securities. The telecom, real estate, and utilities sectors were all under pressure from rising bond yields, closing the day with negative returns. Fed Fund futures contracts indicate a 62 per cent probability of a rate hike announcement on December 14. There were 157 securities in the TSX Index that advanced, 87 securities declined in value, and three stocks closed the day unchanged.

The S&P/TSX composite index is up 12.30 per cent year-to-date.

On today's TSX Breakouts report, there are 51 securities on the positive breakouts list (stocks with positive price momentum), and 60 securities on the negative breakouts list (stocks with negative price momentum). The positive breakouts list is dominated by energy stocks, with 31 of the 60 names from this sector. Meanwhile, gold and silver stocks are the leading names on the negative breakouts list.

Discussed today is a stock that appears on the positive breakouts list. The share price rallied 1.4 per cent on Wednesday on high volume with over 2-million shares traded. The historical two-month average daily trading volume is 1.7-million shares. This stock is a beneficiary of a rising interest rate environment – Sun Life Financial Inc. (SLF-T).

A brief outline is provided below that may serve as a springboard for further fundamental research.

The company

Sun Life Financial is an international financial services company that provides insurance and investment products and services through its global operations. As of the end of the second-quarter, assets under management totaled $865-billion, up 7 per cent year-over-year, and up from $861-billion last quarter. Return on equity (ROE) was 11.9 per cent.

Management's mid-term objectives are to generate annual earnings growth of between 8 per cent and 10 per cent, and realize ROE of between 12 per cent and 14 per cent.

The company will be reporting third-quarter financial results on November 10. The consensus earnings per share estimate is 93 cents.

Dividend policy

The company pays its shareholders a quarterly dividend of 40.5 cents per share, $1.62 on a yearly basis. This translates to an annualized dividend yield of 3.7 per cent.

Since May 2015, the company has a pattern of announcing a dividend hike every other quarter. If this trend continues, investors may see another dividend hike announcement next month.

Valuation

According to Bloomberg, the stock is trading at a price-to-earnings multiple of 11 times the 2017 consensus estimate, which is below its three-year historical average of 11.5 times, and below its peak of just over 13 times during this period, suggesting there is room for multiple expansion.

Analysts' recommendations

According to Bloomberg, there are13 'buy' recommendations, and five 'hold' recommendations. There are no 'sell' recommendations.

The average one-year target price based on 15 analysts' forecasts is $45.75, which implies approximately 6 per cent upside potential over the next 12 months. Target prices range from a low of $42.50 to a high of $50. Individual target prices provided by 16 firms in numerical order are as follows: $42.50, $44, four at $45, three at $46, three at $47, $47.63, two at $48, and $50.

The consensus EPS estimate is $3.71 in 2016, and forecast to rise 6 per cent to $3.93 in 2017.

Over the past six months, there have been minor earnings revisions. For instance, six months ago, the consensus EPS estimate was $3.74 for 2016 and $4.06 for 2017.

Chart watch

The share price is relatively unchanged year-to-date, up just 0.4 per cent, outperforming two of its peers, Manulife Financial Corp. (MFC-T) and Great-West Lifeco Inc. (GWO-T), which have both realized losses of 7.9 per cent and 4.3 per cent, respectively, so far this year. Industrial Alliance Insurance and Financial Services Inc. (IAG-T) is an outperformer in the group, realizing a gain of 9.6 per cent, year-to-date.

For the past two years, the stock has traded sideways, largely between $38 and $45, and is currently approaching the upper end of this range. The low interest rate environment has been a significant headwind, or challenge, for the company.

The stock has major resistance at $45.75, which is its peak closing price from earlier this year, in May. After that, there is major overhead resistance at $50.

In terms of downside support, there is support at $40, and failing that, around $37.

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The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company's dividend policy, analysts' recommendations, and provides a brief technical analysis for a security to provide readers with more information.

If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.

Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.

A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.