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A top dividend investment manager's advice on profiting in today's volatile markets

Senior portfolio manager Ryan Bushell says the trick is to put the “noise” of market gyrations and politics in perspective.

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Investors can best cope with market turmoil by taking a deep breath, ignoring daily twists and turns and holding onto high-quality dividend-paying stocks, according to one of Canada's oldest investment managers.

Leon Frazer & Associates' president Dona Eull-Schultz says that despite the Greek economic crisis, China's efforts to prop up stock markets and the oil-price drop, long-term prospects and increasing payouts among established operators of necessary infrastructure and services remain relatively predictable.

They include utilities, pipelines, railways and Canada's banks.

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When fielding calls from nervous clients, Ms. Eull-Schultz likes to remind them about the energy, phone and other services they use each day regardless of market gyrations, as well as the overall goal of funding retirement.

"Look at the names that you hold in your portfolio. You're writing cheques to these companies because these are the everyday things that you use, and if you're using them, most of the people in Canada are using them," she said.

"So that's going to give you that sense of comfort regardless of what's happening in the moment, in the headline news."

At the heart of the firm's philosophy is increasing clients' income to stay above inflation through investments in companies with staying power.

Case in point: One of Toronto-based Leon Frazer's longest-held positions is in Enbridge Inc. The firm bought into the initial public offering of the predecessor, Interprovincial Pipe Line, in 1953.

"We make very long commitments to our holdings, and that's a great example," Ms. Eull-Schultz says.

The buy-and-hold-quality strategy appears to work, but it takes patience. The firm's data show its stock holdings have outpaced the broader TSX composite index and 10-year bond index in most years, during periods of rising as well as falling interest rates. According to a composite of stocks that closely follows the firm's investment strategy, Leon Frazer boasts total annualized returns of 12.07 per cent from 1981 to 2012, compared to total returns of 9.15 per cent for the S&P/TSX composite index and 11.83 per cent for the blended Canada 10-year bond index.

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The company remains enthusiastic about Alberta's long-term prospects despite current economic woes, having opened an office in Calgary during the depth of the oil-market collapse in March.

Senior portfolio manager Ryan Bushell says the trick is to put the "noise" of market gyrations and politics in perspective.

"What's tangible is there's a heck of a lot of resource here, and you see companies and sovereign governments like the Malaysians and the Chinese spending huge sums of capital," Mr. Bushell says. "We're happy to have, for a portion of the portfolio, some money aligned with that. We think there's going to continue to be wealth created in Alberta."

The province's new NDP government has increased corporate taxes and has begun a policy to double the levy on carbon emissions from large industrial sources, though companies potentially affected should have already been factoring in such moves, he says.

"We look to any company that's trying to operate sustainably, that takes those things into account and evolves with the times," he says. "It sometimes takes time for the companies to catch up to the regulation, and vice versa, but we try to engage ourselves with companies that operate responsibly."

The firm's top holdings are a Who's Who of Canadian blue chips, each with a record of growing dividends, which Mr. Bushell says is the best gauge of long-term health.

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Enbridge, with its record of steadily increasing income and payouts from its main businesses of energy transport and distribution, leads the list. Another deliverer of energy, Fortis Inc., is the second largest. With 3.1 million gas and power customers, Fortis has boosted its dividend by 5 per cent annually over the past five years, generating a 3.5-per-cent yield.

BCE Inc., the country's largest telecommunications media company, and Canadian banks, including Toronto-Dominion Bank and Royal Bank of Canada, round out the top five.

Canadian banks showed their mettle during the financial crisis, having maintained their dividends when financial institutions in other countries faltered.

Now, concerns about Canadian housing and the downturn in energy have hurt the banks' share prices.

"Is any of that going to force them to cut their dividends? We don't think so," Mr. Bushell said. "We have a 20-per-cent concentration limit by sector and banks are at the maximum."

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