Douglas Kee is managing director and chief investment officer at Leon Frazer & Associates. His focus is on Canadian dividend paying stocks.
Cenovus Energy Inc. (CVE-TSX)
Cenovus is a high quality producer with top-tier in-situ assets (Foster Creek, Cristina Lake, Pelican Lake) and has best-in-class netbacks. Bitumen production is forecast to grow from 103,000 b/d in 2013 to 400,000 b/d by 2020. CVE has a natural gas production hedge and its 50-per-cent interest in refinery joint ventures allows participation in refinery spreads. CVE has increased its dividend by approximately 10 per cent per annum over the last three years and currently yields 3.4 per cent.
Fortis Inc. (FTS-TSX)
Fortis is experiencing two years of transition in earnings in 2013 – a negative cost of a capital decision in B.C. hurt earnings, while in 2014 the pre-funding of the UNS acquisition in Arizona has diluted earnings growth. The combination of the UNS deal closing later this year, continued rate base growth in western Canada and the Waneta Dam expansion coming on stream in 2015 should result in double digit earnings growth next year. Over the past 5 years FTS has increased its dividend 4.6 per cent per annum and currently yields 4.0 per cent.
Rogers Communications Inc. (RCI.B-TSX)
The new chief executive officer at Rogers is expected to present his operational strategy this month. The company has been challenged by competitive pricing pressures and the expanding IPTV footprint which have resulted in slowing revenues and higher costs. However, over the medium term RCI's industry-leading cable and wireless infrastructure, best-in-class media/sports assets and lower legacy costs/pension obligations should result in continued strong free cash flow generation. Over the past five years dividend growth has been 11 per cent per annum and the current yield is 4.2 per cent.
Past Picks: January 14, 2013
Bank of Nova Scotia (BNS-TSX)
Then: $57.64; Now: $66.56 +15.48%; Total return: +21.48%
Encana Corp. (ECA-TSX)
Then: $19.05; Now: $25.69 +34.86%; Total return: +40.44%
BCE Inc. (BCE-TSX)
Then: $42.11; Now: $48.96 +16.27%; Total return: +24.02%
Total return average: +28.65%
"Now" figures are intraday from the date of the analyst's appearance on BNN Market Call.
The S&P/TSX composite at 14,600 is up 8.5 per cent year to date, including income. Our forecast for the year was for returns in a range of 8 to 10 per cent reflecting earnings growth of about 12 per cent. With the market trading at the high end of our trading range forecast we believe that a consolidation over the summer is likely and we would view that positively. The U.S. market has underperformed Canada which is understandable after the previous two year outperformance. We are at our maximum allowable weight in banks and energy. Looking forward into 2015 we believe that materials stocks should perform well due to improving global growth. Generally materials companies are running at cost of production, concentrating on cost control and provide attractive current dividend yields.