Nick Majendie is portfolio advisor at ScotiaMcleod's Anchor Funds, focusing on Canadian large caps.
The proposed Teco Energy deal will roughly double the size of Emera and be significantly accretive in 2017 and 10 per cent accretive in 2019. It buttresses EMA's 8 per cent dividend growth target and improves the quality of underlying earnings since with the Teco acquisition, 80 per cent of earnings will be regulated.
Peyto Exploration & Development (PEY.TO)
Peyto is relatively unique in the oil and gas space, having increased its dividend last October, maintained good profitability and yet accelerated its 2015 drilling program. This has been achieved since PEY is Alberta's lowest cost gas producer and, on flat gas prices, has been able to materially reduce its capital and operating costs and increase its margin.
CM's Q3 earnings surprised on the upside as the bank's retail and business banking unit posted sector best earnings growth of 7 per cent. The improvement in the key business lines and strong capital position should make for continuing good dividend increases and an improvement in CM's P/E multiple.
Past Picks: April 30, 2014
Brookfield Renewable Energy (BEP_U.TO)
New comments: We continue to hold BEP on account of attractive yield, ability to grow its cash flow organically and dividend by its targeted 5%-9% per year exclusive of M&A upside. Up 14 per cent since April 2014 plus growing dividend (yield currently 6 per cent)
Then: $31.92 Now: $36.56 +14.54% Total return: +24.04%
New comments: We retain a core position in Fortis based on strong rate base growth in Canada and the U.S. through 2019 ($9-billion at a 6.5 per cent growth rate). Underpins dividend growth of 6 per cent per annum. Up 15 per cent since April 2014 (current dividend yield 3.6 per cent)
Then: $32.20 Now: $36.57 +13.57% Total return: +19.97%
Brookfield Property Partners (BPY_U.TO)
New comments: We continue to own BPY on account of its strong projected AFFO growth over the next three years (15%-20%) and its large discount to NAV (still over 20 per cent). Up 32 per cent since April 2014 with increasing distribution (yield currently 5 per cent)
Then: $21.15 Now: $28.77 +36.03% Total return: +45.82%
Total Return Average: +29.94%
We think the recent high levels of volatility will be followed by some measure of recovery. It is our current belief that we are in the midst of a correction in North American equity markets rather than being at the beginning of a North American bear market. We believe the risk of a hard landing in China was a first half of 2015 phenomenon and that real money growth plus reductions in the cash reserve requirement ratio will assuage investor fears as the rest of this year unfolds. An improving European economy (recent PMI numbers are encouraging in this respect as well as recent real M1 trends), a pickup in Chinese growth with continuing modest U.S. economic growth should mean a short term peaking in the U.S. dollar and a measure of recovery in commodity markets. The commodity sectors – despite their plunge in recent months – are still a very significant weighting in the TSX. So too is the financial sector and the Canadian banks where have become cheap while bank earnings as per Q3 results have held up much better than feared by investors. Thus, at the very least, we would expect some recovery in bank share prices between now and year-end. With the possibility of the energy sector and potentially the gold sector as well bottoming out between now and year-end, we are hopeful for a decent recovery in the TSX over the next few quarters.