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yield hog

John Heinzl is the dividend investor for Globe Investor's Strategy Lab. Follow his contributions here. You can see his model portfolio here.

You may have heard that buy-and-hold investing is dead. With markets so volatile these days, the only way to make money is to trade in and out and exploit temporary opportunities, or so the theory goes.

Hogwash, says Tony Demarin, president of BCV Asset Management in Winnipeg.

"We're not market timers here," says Mr. Demarin, whose firm employs a classic buy-and-hold investment approach for the $570-million it manages primarily on behalf of individuals.

BCV (short for Blue Chip Value) focuses on conservative, large-cap stocks with the following attributes:

-a solid balance sheet;

-an attractive valuation;

-a leadership position in the industry;

-above-average profitability;

-long-term earnings and dividend growth.

Another key ingredient is time. Although the firm will consider selling a stock if the business is broken, in most cases BCV holds a stock for years to benefit from the rising income and capital growth. "Companies that have a long track record of raising dividends tend to have nice correlations on share price appreciation," he says.

The formula seems to work. For the five years ended Nov. 30, BCV's Canadian Equity Model Portfolio has produced an annualized total return of 16.1 per cent, topping the S&P/TSX Composite Index's annualized return of 10.8 per cent over the same period, according to Bloomberg. Both figures include dividends.

We asked Mr. Demarin to discuss five of his favourite buy-and-hold dividend stocks.

Bank of Nova Scotia (BNS)

  • Yield: 3.9 per cent
  • 5-yr. annualized div. growth: 4.5 per cent
  • Last dividend hike: Aug. 27, 2013

Mr. Demarin has held Bank of Nova Scotia personally since he started his career there in 1990, and today his firm holds the shares widely in client portfolios. "Scotia is one we like because of its international diversification, and because it's been growing in areas such as wealth management," he says. With a price-to-earnings ratio of about 12.8, the stock isn't a screaming bargain, but he expects that all of the big banks will continue raising their dividends roughly twice a year. Scotiabank – which reports Friday – will probably leave its dividend unchanged this quarter, according to Bloomberg, having hiked it in August.

TransCanada (TRP)

  • Yield: 3.9 per cent
  • 5-yr. annualized div. growth: 5.1 per cent
  • Last dividend hike: Feb. 12, 2013

TransCanada has raised its dividend in late January or early February for 13 consecutive years, and Mr. Demarin doesn't see that trend stopping any time soon. Even if the Keystone XL pipeline is ultimately rejected – he puts the odds at 50-50 – the pessimism is already baked into the stock and TransCanada has plenty of other growth projects on the go. "Keep in mind it's more than just pipelines. They're also involved in power, nuclear power, wind power and other generating. We're continuing to accumulate it. We like the yield and the company is going to continue to raise its cash flow over time," he says.

Intact Financial (IFC)

  • Yield: 2.6 per cent
  • 5-yr. annualized div. growth: 7.5 per cent
  • Last dividend hike: Feb. 6, 2013

Intact is Canada's largest property and casualty insurer, with brands that include Intact, belairdirect, Grey Power and Jevco. "We like this business because it's consolidated the industry here in Canada. It's the leader," he says. Recent floods in Calgary and Toronto have posed a challenge, but "now they're going back to their policy holders and they're raising prices." The yield is modest, but he expects the dividend to continue growing at high single-digit rates.

Saputo (SAP)

  • Yield: 1.9 per cent
  • 5-yr. annualized div. growth: 12 per cent
  • Last dividend hike: Aug. 6, 2013

Shares of Saputo, Canada's largest dairy processor, slumped about 6 per cent in November amid a takeover battle for Australia's Warrnambool Cheese and Butter Factory. "The fear is they're going to end up overpaying for this asset because they're in a bidding war," he says. If Saputo's bid fails, the stock would probably rebound, he says, but regardless of what happens, the company has a proven ability to reward shareholders with growing earnings and dividends.

Canadian Natural Resources (CNQ)

  • Yield: 2.3 per cent
  • 5-yr. annualized div. growth: 20 per cent
  • Last dividend hike: Nov. 7, 2013

Canadian Natural Resources' yield isn't huge, but the oil and gas producer has been raising its dividend at a torrid pace. That includes a 60-per-cent hike in November, driven by oil sands expansion and record quarterly cash flow of $2.45-billion. The dividend increase "tells you the company is very confident its cash flows are going to be there to reward shareholders," Mr. Demarin says. "They're about to see lots of growth of production in their oil sands activity and they just don't need the same level of capital expenditures to maintain and grow that, so they're going to start rewarding shareholders."

Disclosure: The author personally owns BNS and TRP.