Thursday’s TSX breakouts: This stock’s 7.5% dividend appears sustainable

There are four stocks on the positive breakouts list, two of which are recent takeouts - Progressive Waste Solutions is being acquired by U.S. based-Waste Connections, and Capstone Infrastructure is being bought by Icon Infrastructure at $4.90 a share.

The list of negative breakouts is remains elevated, but isn't expanding sharply, currently standing at 99 names. There does not appear to be wide-spread capitulation. The selling pressure remains concentrated in resource stocks with 47 per cent of the names from the energy and materials sectors. Financial stocks are also getting hit with five of the big six banks, TD Bank the lone exception, breaking down on energy loan losses concerns.

Discussed below is a financial stock that remains under selling pressure despite its attractive yield due to concerns surrounding its Albertan exposure, that stock is Genworth MI Canada Inc (MIC-T).

Genworth is the largest private residential mortgage insurer in Canada. Many stocks with significant exposure to the Albertan economy are under selling pressure. As of June 30, 2015, management estimates that 20 per cent of its outstanding mortgages were from Alberta. In terms of new insurance written, in the third-quarter, 21 per cent stemmed from Alberta, down from 27 per cent in 2014.

Dividend policy

The company pays shareholders a quarterly dividend of 42 cents per share, or $1.68 per year, equating to an annualized yield of 7.5 per cent.

Over the past five years, the company has raised its dividend each year, and also paid shareholders special cash dividends in 2014 as well as in 2011.

The dividend appears sustainable with the payout ratio at 39 per cent year-to-date as of the end of the third-quarter.

Valuation

The stock trades at a price-to-book value 0.6 times the consensus 2016 estimate, at trough historical levels.

Analysts' recommendations

According to Bloomberg, there are two analysts with buy recommendations, five analysts with a hold recommendation, and one sell recommendation. The average one-year price target at $34.81, implying the stock price return of over 56 per cent. Price targets range from a low of $30 to a high of $42. Individual price targets are as follows: $30, $31.50, $34, three at $35, $36, and $42.

The consensus earnings per share estimate is $3.87 in 2015 relatively unchanged from 2014, and the Street forecasts earnings to decline to $3.64 in 2016.

Chart watch

Shares are under significant pressure, declining over 16 per cent year-to-date. This is on top of a decline of 28 per cent in 2015.

The stock price broke down in 2015, with the 50-day moving average crossing below the 200-day moving average. We have yet to see any stabilization in the stock price and the downtrend remains in place. On Wednesday, the stock price fell 4.5 per cent on high volume. Over 500,000 shares traded, this is well above normal conditions. The average daily volume over the past two months is just over 237,000 shares.

The relative strength index is at 24, suggesting an oversold condition. Generally, a reading at or below 30 indicated an oversold condition. However, a stock can remain in an oversold condition for some time.

There is large downside support around $20. The stock has upside resistance at $25.

As always, I strongly encourage readers to consult a financial adviser, and to do their own proper due diligence before taking any investment action.

Below is a list of stocks in the S&P/TSX composite index and the S&P/TSX Small Cap index that are technically breaking out, reaching new 55-day highs or lows. Stocks on the positive breakouts list have displayed positive price momentum during this period. Stocks on negative breakouts list have experienced negative price momentum.