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yield hog

The Bay Street sign is pictured in the heart of the financial district as people walk by in Toronto.MARK BLINCH/The Globe and Mail

With stock markets plunging amid worries about rising interest rates, plenty of investors have been selling dividend-paying companies indiscriminately.

Not Darren Sissons. He's been buying them.

"Investors, and retail investors in particular, are abandoning … categories such as consumer staples and consumer discretionary, telcos and utilities," says the partner and portfolio manager with Campbell Lee & Ross Investment Management. "We are of the opinion that buying out-of-favour dividend champions will provide an attractive total return for patient, dividend-focused investors longer term."

For income-seeking investors with cash to spend, the market drop has a silver lining: Every tick down in a company's share price raises its yield. To take one example, from Jan. 4 through Feb. 5 shares of pipeline company Enbridge Inc. tumbled about 15 per cent. As a result, the dividend yield has surged to 6.2 per cent from 5.3 per cent.

Granted, the higher yield doesn't benefit investors who already own the shares. But for long-term investors who are still in the asset accumulation phase, market sell-offs present an opportunity to purchase a stream of dividend income at a discounted price. What's more, for companies such as Enbridge that raise their dividends regularly, that stream of income will grow.

Mr. Sissons's firm – which manages about $300-million on behalf of high-net-worth individuals and institutions – has been picking up several other dividend-paying companies, in addition to Enbridge. Here are five other stocks on its shopping list recently.

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BCE Inc. (BCE)

*Price: $56.12

*Yield: 5.1 per cent

If BCE sticks to its well-established pattern, the telecom giant will raise its dividend when it releases fourth-quarter results on Feb. 8. Yet any optimism related to the potential dividend hike has been overshadowed by the fear sweeping stock markets. "BCE is a well run telecom company," Mr. Sissons says. "It is currently benefiting from the acquisition of Bell Aliant in 2014 and prudent and sustained expansion of its fibre footprint." On the wireless side, BCE is coming off a third quarter in which it added 117,000 new contract wireless customers, topping analyst forecasts and registering its best performance in the last five years. Yet the stock has tumbled about 8 per cent year to date.

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Canadian National Railway Co. (CNR)

Price: $96.67

Yield: 1.9 per cent

Canadian National Railway "is the best performing rail company in North America. It has the best network and has diversified exposure to all major cargo categories," Mr. Sissons says. In addition to increasing its dividend annually – it announced a 10-per-cent hike in January – the company buys back its own stock regularly. Over the past 10 years, the shares have produced a stellar total return – including dividends – of 16.5 per cent annually. "Economic cycles come and go, but companies like this with a sustainable, growing business model continue to perform, so that's why we own it," he says.

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Alimentation Couche-Tard Inc. (ATD.B)

Price: $61.70

Yield: 0.6 per cent

Alimentation Couche-Tard's puny yield alone isn't going to attract a lot of attention from dividend investors, but the fast-growing convenience store operator raises its payout regularly and – thanks to its surging share price – has generated an annualized total return of about 28 per cent over the past decade. "The balance sheet is strong, despite its history of successful large scale acquisitions. It has an excellent management team, a proven track record and we expect more accretive acquisitions going forward and dividend increases in the years to come," Mr. Sissons says. For all those positives, the shares trade at a "reasonable" multiple of about 15 times estimated earnings for fiscal 2019.

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Manulife Financial Corp. (MFC)

Price: $24.83

Yield: 3.3 per cent

Rising interest rate are good for life insurance companies because they can earn a higher return on the premiums they invest. But you wouldn't know it from looking at shares of Manulife Financial, which have been swept lower along with other dividend stocks. In addition to the tailwind from rising rates, Manulife benefits from the strong global economy and from generating about 40 per cent of its EBITDA (earnings before interest, taxes, depreciation and amortization) from Asia, "which is a plus as it's a high growth region," Mr. Sissons says. Adding to Manulife's appeal, the stock trades at an attractive multiple of less than 10 times estimated 2018 earnings, and the company's "modest payout ratio supports dividend growth in coming years," he says.

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Pembina Pipeline Corp. (PPL)

Price: $40.30

Yield: 5.4 per cent

With rising interest rates posing a challenge to debt-heavy pipelines and utilities stocks, Pembina stands out for its solid balance sheet and strong projected cash flow growth, Mr. Sissons says. What's more, it should have no trouble funding its growth plans, he says. The acquisition last year of Veresen Inc. was another plus because it further diversified Pembina's asset base, creating one of Canada's largest energy infrastructure companies, with exposure to crude oil, natural gas and natural gas liquids. The company has raised its dividend at a compound annual rate of 6.7 per cent over the past five years, and Mr. Sissons sees more increases ahead.

* Prices and yields as of Feb. 5.

Disclosure: The author owns share of BCE and MFC personally and in his model Yield Hog Dividend Growth Portfolio. View it at tgam.ca/dividendportfolio

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