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Ryan BushellMargaret Mulligan

Ryan Bushell is a portfolio manager at Leon Frazer and Associates. His focus is on Canadian dividend stocks.

Top picks:

Potash Corp. of Saskatchewan Inc.
Potash the newest holding in most of our portfolios. The dividend has increased five-fold with a recent increase in May to $1.40 (U.S.) which represents a current yield of more than 3.3 per cent. Potash Corp. has an impressive free cash flow profile going forward as the low-cost producer, even at current depressed potash prices. Capital expenditures are expected to decrease significantly beginning in 2014. This should support continued growth in the dividend for years to come.

Baytex Energy Corp.
Baytex Energy is a well-managed Canadian heavy oil producer. Recent volatility in heavy oil prices combined with a management shakeup last summer has created a rare buying opportunity for a company that usually receives a premium valuation. Baytex has consistently increased its dividend following its conversion to a corporation in 2009 (an 83-per-cent increase in four years) before pausing this year to accommodate poor Canadian heavy oil prices. The dividend continues to be well supported, even at the current 6.7-per-cent yield, and the company has exposure to an improved Canadian heavy oil outlook going forward.

Rogers Communications Inc.
Rogers' shares had a great run before consolidating recently following an announcement that Wind Mobile may be recapitalized and emerge as a stronger wireless competitor. While this may end up coming true it would not necessarily be a negative for Rogers as it would go toward maintaining the status quo on the regulatory front. Rogers continues to execute a number of important strategic deals to position itself for the future, the most recent being the network sharing agreement with Vidéotron Ltée. Longer term, Rogers has ideally located exposure to the growing world of communications technology including the exciting new opportunity in machine-to-machine wireless data growth. Its free cash flow and dividend growth remain strong.

Past pcks: Jan. 3, 2013

Cenovus Energy Inc.
Then: $33.48
Now: $30.86
Total return: –7.14 per cent

Crescent Point Energy Corp.
Then: $38.64
Now: $37
Total return: –1.33 per cent

BCE Inc.
Then: $42.99
Now: $46.34
Total return: +9.14 per cent

Total return average: +0.22

Market outlook:

We remain constructive on the North American economy and markets. Overall economic data has been more positive than we expected given the weakness observed in the second quarters of both 2011 and 2012. We continue to forecast relatively tepid 2- to 4-per-cent GDP growth for both Canada and the U.S. as underlying fundamental recovery strength is offset by stimulus withdrawal. U.S. housing continues to recover while the Bank of Canada and the Canadian government are trying to engineer a soft landing for the Canadian housing market. Energy prices remain strong and Canadian energy prices are recovering as transportation issues are slowly being resolved.

We have seen very strong dividend growth in our portfolios so far this year and over the past few years. In fact, this dividend growth has outpaced appreciation from the stocks that make up the portfolio such that the current yield has actually increased. Our portfolio dividend yields range from 1.5 times to two times the yield on 10-year government bonds. We continue to believe that money flowing to dividend-paying equities, as baby boomers demand more income from their investments, will underpin dividend-paying stock valuations for years to come.