Most people hate it when the stock market tumbles. Not Norman Levine.
As a value investor, the managing director with Portfolio Management Corp. has been "expecting and hoping for a correction" so he can pick up stocks on the cheap. So far, only half of his wish has come true. Since closing at a record in mid-February, the S&P/TSX composite index has slumped by nearly 5 per cent, dragged down by commodity producers and banks.
But U.S. stocks have been powering to new highs, shrugging off concerns that the market has become dangerously overpriced.
"This is not exactly how we envisaged it happening," Mr. Levine says.
"We thought it would be a more general sell-off in equities due to excessively high valuations, especially in the U.S."
For Mr. Levine, valuation is just one piece of the investing puzzle. He also looks for companies with low debt levels, strong management and a dividend that increases regularly. The initial yield doesn't have to be high, "but we like the dividend to grow so that years later, the yield on original purchase is very attractive," he says.
Here are five of his favourite dividend stocks right now. Remember to do your own due diligence before investing in any security.
Power Financial Corp. (PWF-T)
Yield: 4.98 per cent
Power Financial, controlled by the Desmarais family, is a diversified financial-service holding company that owns majority interests in insurer Great-West Lifeco Inc. and fund manager IGM Financial Inc. and a minority stake in European investment firm Pargesa Holding. "Great-West's earnings are temporarily under pressure, which has given long-term value investors a great chance to buy PWF at a very reasonable valuation [about 10.8 times estimated 2017 earnings] and a great yield," Mr. Levine says.
What's more, the company has resumed regular dividend increases, having raised its payment for three consecutive years after leaving its dividend unchanged for six years following the financial crisis.
Gorman-Rupp Co. (GRC-N)
Price: $26.26 (U.S.)
Yield: 1.75 per cent
Gorman-Rupp makes pumps for a wide range of industries including construction, energy, mining, agriculture and municipal water. It also pumps out regular dividend increases, with a track record of annual hikes going back 44 years.
"The company is managed by the third generation of the founding family, is debt-free and produces significant cash flow as it has minimal capital expenditures," Mr. Levine says. Yet the stock is trading where it was four years ago, hurt by the high U.S. dollar, which reduces earnings for its international sales, and by the downturn in energy.
At about 29 times estimated 2017 earnings, the "valuation is not cheap, [but] it is at the lower end of its 10-year average," he says.
Pfizer Inc. (PFE-N)
Price: $33.56 (U.S.)
Yield: 3.81 per cent
Drug giant Pfizer, as with many pharmaceutical companies, has faced patent expirations for some of its top-selling drugs.
But the company has fought back by developing new treatments and, more significantly, by making a string of acquisitions to keep its medicine chest full, including a $17-billion (U.S.) deal for Hospira Inc. in 2015 and the $14-billion purchase of Medivation Inc. in 2016.
The company offers an attractive yield and the potential for solid dividend growth, having raised its payment at an annualized pace of 7.8 per cent over the past five years.
As a potential bonus, if the U.S. government passes tax-reform legislation, "Pfizer will benefit … both domestically and by being able to repatriate a huge cash position held overseas," Mr. Levine says.
Stantec Inc. (STN-T)
Yield: 1.55 per cent
Stantec is an engineering, design and environmental-services company whose projects span everything from roads, bridges and airports to sports stadiums and skateboard parks. Mr. Levine likes the stock because the company stands to benefit from a boost in provincial and federal infrastructure spending and also from an eventual recovery in commodity prices that would give its energy and mining divisions a lift. In addition to growing organically, the company has made a string of acquisitions including the 2016 purchase of MWH Global Inc. that significantly expanded Stantec's water infrastructure business. Even as Stantec's shares have gone largely sideways for the past several years, the dividend has grown annually since it was initiated in 2012.
Bank of Nova Scotia (BNS-T)
Yield: 3.86 per cent
Portfolio Management owns just one Canadian bank: Bank of Nova Scotia. Why Scotiabank? With about 40 per cent of its income generated internationally – including a heavy focus on Latin America – it's "the least Canadian of the big banks," Mr. Levine says. "We believe that outside of capital market activities, Canadian banks face headwinds that will slow earnings and dividend growth from historical levels while U.S. banks will show stronger earnings and dividend growth at more reasonable valuations." He also likes Scotiabank for its attractive yield, cost-cutting initiatives and investments in digital and mobile banking.
Disclosure: The author owns shares of Bank of Nova Scotia.
Yield Hog is part of Globe Unlimited's Strategy Lab series. Subscribers can read more at tgam.ca/strategy-lab.