It's tough to know where the bottom is after a stock market selloff. But scooping up bargains among dividend stocks can provide some comfort: You still get paid while waiting for a rebound.
Investors have a chance to pick up those blue-chip stocks that were once pricey. They also have opportunities to buy stocks yielding up to 6 or 7 per cent from stable, growing companies.
We asked three dividend fund managers to suggest where investors can park their money.
Michael Simpson, portfolio manager with Sentry Investments, Toronto
- Pick: Information Services Corp. (ISV-TSX)
- Last close: $13.64 a share
- 52-week range: $13.21 to $19.14 a share
- Annual dividend: 80 cents a share for a yield of 5.87 per cent
Shares of this Saskatchewan-based provider of land, personal property and corporate registry services have been hurt by perceptions that it is a resource play, but the province has a diversified economy and still attracts capital, Mr. Simpson says. "Oil and gas is only about 14 per cent of the Saskatchewan GDP."
The company, which is 31-per-cent owned by Saskatchewan's government, recently acquired Ontario-based ESC Corporate Services Ltd. as well as a 30-per-cent stake in B.C.-based OneMove Technologies Inc. to expand outside the province. While a steep recession is a risk, the company has a clean balance sheet and a monopoly in the province until 2033, he noted. "In a recovering economy, this stock could go to $16.50 a share in 18 months."
- Pick: AltaGas Ltd. (ALA-TSX)
- Last close: $33.43 a share
- 52-week-range: $27.09 to $50.73 a share
- Annual dividend: $1.92 a share for a yield of 5.74 per cent
The stock of this Calgary-based energy infrastructure company, which focuses on natural gas, power and utilities, has taken a big hit amid concerns about collapsing commodity prices. But AltaGas has "little commodity exposure," Mr. Simpson said. "A good chunk of its assets either are contracted or regulated as in the case of power or utilities."
The company is also finding markets outside Canada. It recently began shipping liquefied propane gas from a terminal in Washington state to Asia. AltaGas expects to decide by year end whether to go ahead with its proposed B.C.-based Douglas Channel liquefied natural gas export facility. That is a potential near-term catalyst for the stock, he noted. His 18-month target price is $40.50 a share.
Brian Tidd, portfolio manager with Invesco Canada Ltd., Toronto
- Pick: Chemtrade Logistics Income Fund (CHE.UN-TSX)
- Last close: $18.13 a unit
- 52-week range: $16.55 to $22.33 a unit
- Annual distribution: $1.20 a unit for a yield of 6.62 per cent
Units of this Toronto-based provider of industrial chemicals and services have been "battered unfairly" amid market volatility, Mr. Tidd suggests. "There is no real reason other than general fears over the economy." Chemtrade has a history of pretty stable earnings and a "strong management team that is pretty astute about doing accretive acquisitions," he said. "We wouldn't be surprised to see more acquisition activity over the next 24 months."
With up to 70 per cent of its business in the United States, its earnings have benefited from the strong U.S. dollar. "The fair value [for Chemtrade] is significantly higher than where it is today," he said. "You are getting an attractive yield while you wait for the market to realize it has mispriced this business."
- Pick: Rocky Mountain Dealerships Inc. (RME-TSX)
- Last close: $6.45 a share
- 52-week range: $5.82 to $11.19 a share
- Annual dividend: 46 cents a share for a yield of 7.13 per cent
Shares of this consolidator of agricultural- and construction-equipment dealerships have tumbled amid falling demand by farmers who are facing lower crop yields and weaker commodity prices, says Mr. Tidd. The falling Canadian dollar versus the U.S. greenback also makes the equipment they sell more expensive, he noted.
But these are transient pressures, and the outlook should improve next year, he suggested. Rocky Mountain shares should see a "significant bounce" in a more normal environment, he said. "It's a company that has grown its dividend at a five-year compound growth rate of about 20 per cent, so it is a pretty attractive dividend growth story, too."
Andy Nasr, portfolio manager with Middlefield Capital Corp., Toronto
- Pick: Whirlpool Corp. (WHR-NYSE)
- Last close: $157.93 (U.S.) a share
- 52-week range: $139.85 to $217.11 a share
- Annual dividend: $3.60 a share for a yield of 2.28 per cent
Shares of this U.S. maker of household appliances have sold off amid worries about slowing international sales that make up nearly 50 per cent of revenue, says Mr. Nasr. But Whirlpool, whose brands include KitchenAid and Maytag, should benefit from a North American recovery and creation of new households, he added.
The recent acquisition of General Electric Co.'s appliance business by AB Electrolux gives it and Whirlpool about 80 per cent of the North American market, and provides support for price increases, he noted. The current stock price provides an attractive entry point for Whirlpool, whose free cash flow should double to about $1.5-billion by 2018, he said. He has a target of $220 a share for the stock over the next 12 to 18 months.
- Pick: Newell Rubbermaid Inc. (NWL-NYSE)
- Last close: $41.03 (U.S.) a share
- 52-week range: $31.14 to $44.51 a share
- Annual dividend: 76 cents a share for a yield of 1.85 per cent
Shares of this consumer and commercial products company, whose brands include Calphalon cookware, Graco car seats and Rubbermaid containers, should get a lift from a rebounding U.S. economy, Mr. Nasr says. "The new chief executive who came in during 2012 has done a good job so far. … Free cash flow for the company has improved. They have done a better job of improving margins and product innovation."
Newell's brands have the No. 1 or No. 2 position in most of its categories, but it can make acquisitions and deepen its penetration in its categories, he said. Newell has a payout ratio of 33 per cent, so it has room to hike its dividend, while its shares trade at a big discount versus its peers, he noted. His 12- to 18-month target price is $50 a share.