Where is the Canadian dollar heading? What about oil prices? And is the next leg in interest rates up or down?
Renato Anzovino is the first to admit he doesn't know. But the manager of the $60-million Heward Canadian Dividend Growth Fund says his investing strategy doesn't rely on making such predictions. Instead, he tries to identify companies that can thrive in any environment.
One of the first things he looks for is a steadily rising dividend. "That confirms to us that the underlying business is solid and the outlook going forward is positive," Mr. Anzovino says.
The fund produced an annualized total return – including dividends – of 11.3 per cent for the five years ended Oct. 31, beating the S&P/TSX composite index's comparable return of 8.4 per cent. (As a pooled fund, Heward Canadian Dividend Growth reports results before fees, which range from 1 to 1.5 per cent depending on the size of a client's investment.)
A growing dividend isn't the only factor Mr. Anzovino considers. He also looks for relatively predictable earnings, low debt levels, increasing free cash flow and an attractive valuation. Here are five of the fund's current holdings.
Canadian Tire (CTC.A)
Mention Canadian Tire Corp., and most people think of the namesake stores that sell hardware products, household items and sporting goods. But the company also has its own financial services division, owns extensive real estate assets and operates other retail banners including Mark's, Sport Chek, Pro Hockey Life and Atmosphere. The company's diverse product mix and accessible locations have insulated it from online competition and contributed to rising same-store sales, including growth of 3.9 per cent in the third quarter. Canadian Tire has been raising its dividend annually and recently announced an unusually large increase of 38 per cent along with its latest results.
Intact Financial (IFC)
Intact Financial Corp. is the largest property and casualty insurer in Canada, operating through the Intact, belairdirect, Brokerlink and OneBeacon brands. With an estimated 17-per-cent market share, the company's scale allows it to streamline costs and increase profitability, Mr. Anzovino says. Yet the insurance market remains highly fragmented, providing plenty of opportunity for the company to continue its growth-through-acquisitions strategy. The stock's yield may be modest, but the dividend has grown at an annualized rate of nearly 10 per cent over the past five years and Mr. Anzovino sees more growth ahead. Intact's recent acquisition of U.S.-based specialty insurer OneBeacon Insurance Group is a "game changer," he says, because it gives the company a platform for expansion in the U.S. market.
With wireless data usage continuing to grow, smartphone penetration increasing and immigration bringing in a steady supply of customers, the long-term outlook for the wireless industry is very favourable, Mr. Anzovino says. Telus Corp. is also benefiting from rebounding economic growth in Western Canada and from the lowest customer turnover or "churn" rate in the industry, thanks to its strong customer service. Recent results have been solid: The company added 152,000 cellphone, internet and TV accounts in the third quarter . The company also increased its dividend by about 2.5 per cent – its second increase of the year – bringing total dividends declared in 2017 to $1.97 a share, up 7.1 per cent from $1.84 in 2016. And there's likely more to come: Telus aims to continue increasing its dividend twice a year at an annualized rate of 7 per cent to 10 per cent through 2019.
Open Text (OTEX)
Shares of enterprise software giant Open Text Corp. have struggled of late, reflecting concerns about an increase in the company's debt ratios following a string of acquisitions, Mr. Anzovino says. But the company generates strong free cash flow and should be able to bring its debt down to more manageable levels, he says. The stock trades at a multiple of about 13 times estimated earnings for the year ending in June, 2018. And the dividend – which was initiated in 2013 and is declared in U.S. dollars – has been climbing at an annualized rate of about 15 per cent over the past four years. The attractive valuation, growing dividend and Open Text's expertise at driving increased profitability from acquisitions make the stock an appealing pick in a business world that's increasingly going digital, he says.
Cineplex Inc. shares have plunged about 24 per cent this year, reflecting a weak slate of releases and worries that the movie business is in decline at the hands of Netflix and other streaming options. But Mr. Anzovino says the fears are overblown: After a spate of summer duds, recent movies such as Thor: Ragnarok and the soon-to-be-released Star Wars: The Last Jedi herald a turnaround at the box office. There's also more to Cineplex than movies.
The company operates Playdium amusement centres, hosts competitive video game events, operates a growing network of digital displays in restaurants, malls, banks and other venues and is expanding its Rec Room chain of dining and entertainment centres. "The company is transitioning from a movie theatre operator to a truly diversified entertainment company," Mr. Anzovino says. Cineplex's dividend has grown at an annualized rate of 4.9 per cent over the past five years.