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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.

As a dividend fund manager, Renato Anzovino tries not to get too worked up about short-term moves in interest rates, oil prices and other variables.

Nobody agrees on where they're heading, anyway.

"You have people saying interest rates are going to go even lower. You have people saying they're going higher. You have people predicting oil is going to $20 [U.S.] a barrel, and others saying $100 a barrel," he says.

The trick, he says, is to tune out the noise and look at the companies themselves.

"We're just focusing on companies where we know there is some certainty in the growth of their underlying businesses or other catalysts that could send these companies to another level over the next six to 18 months," he says.

To make it into the Heward Canadian Dividend Growth Fund that he manages, a company has to meet several tests. Among other things, it must have:

  • A yield of at least 1.5 per cent;
  • The capacity to raise its dividend;
  • Strong free cash flow;
  • A management team that reinvests prudently in the business;
  • An attractive valuation, as measured by price-to-earnings, price-to-cash flow, intrinsic value and other measures.

The $38-million pooled fund, which is open to "accredited investors" or to those who invest a minimum of $150,000, has put up some solid numbers.

For the five years to Dec. 31, the Heward Canadian Dividend Growth Fund posted an annualized total return – including dividends – of 11.7 per cent, compared with 7.5 per cent for the S&P/TSX total return index. (The fund's returns are before fees, which vary depending on the size of a client's investment).

Here are five of the fund's current holdings. Remember to do your own due diligence before investing in any security. Also remember to diversify: This is just a small sample of the fund's portfolio of 35 stocks.

Telus (T-TSX)

Yield: 3.6 per cent

Telus has hiked its dividend by more than 11 per cent annualized over the past three years, driven by the growing adoption of smartphones, increased data consumption and the rollout of Optik TV. "The less talked about story within Telus is their health division," Mr. Anzovino says. "Telus Health is focused on becoming the IT provider behind health services, where they act as the bridge between customer, hospital, doctor and insurer. There are tremendous growth opportunities in this area."

Cineplex (CGX-TSX)

Yield: 3 per cent

As Canada's largest chain of movie theatres, Cineplex has a "near-recession-proof" business model that generates revenue not only from movie tickets and concessions, but also from advertising on its websites, magazine, lobbies and theatre screens. Premium seating and food are helping to boost margins, and Cineplex's SCENE loyalty program is growing rapidly. What's more, 2015 is shaping up as a strong year at the box office with new movies from blockbuster franchises including James Bond, Star Wars, Fast & Furious, Mission Impossible, Avengers and others.

Algonquin Power & Utilities (AQN-TSX)

Yield: 4 per cent

Algonquin, which owns electricity generation and regulated utility operations, has raised its dividend by double-digit rates in recent years, supported by organic growth and acquisitions. Algonquin "keeps delivering … higher earnings and above-average dividend growth, so the market is becoming more aware of this company," Mr. Anzovino says. With more than $2.5-billion of future projects, Algonquin's earnings growth will help to protect the stock should interest rates rise, he says.

Power Financial (PWF-TSX)

Yield: 3.8 per cent

Power Financial hasn't raised its dividend since 2008, but the stock has barely budged since then, either, even as the company's performance has been improving. The company – which owns Great-West Lifeco, IGM Financial and other assets – has "many levers it can use to increase shareholder value. Resuming its dividend growth is one such example," Mr. Anzovino says, noting that subsidiary IGM recently hiked its dividend after a long hiatus.

Pason Systems (PSI - TSX)

Yield: 3.9 per cent

Shares of Pason, which provides specialized data management systems to monitor the performance of drilling rigs, have plunged along with oil prices. But the company is being "unduly punished," Mr. Anzovino says. "This is a rock-solid company … with no debt on its balance sheet and enough cash to cover current dividend payments for the next three years." Investors will get a clearer picture of how Pason is coping with low oil prices when the company reports fourth-quarter results on Feb. 26.