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It’s not just what he owned in his dividend portfolio, but what he didn’t own that helped money manager René Fantin of Stone Asset Management outperform the market in recent years.

“We like to own companies that are able to consistently deliver results, and we avoid sectors and securities that are either too volatile or lack the room for either growth or dividend growth,” says Mr. Fantin, a portfolio manager who manages about $380-million in assets across four dividend funds, including the largest, the Stone Dividend Growth Class fund, a Lipper Award winner this year for its performance.

The fund, which is a mix of mostly Canadian and U.S. equities, saw a total return of about 8.6 per cent so far this year, as of Nov. 17, according to Morningstar. Its annualized total returns over the past three and five years are 9.1 per cent and 8.4 per cent, respectively. The Series F, which is generally available for fee-based advisers, has a management expense ratio of 1.41 per cent.

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The fund’s top five holdings are Canadian banks, specifically Royal Bank of Canada and Toronto-Dominion Bank, as well as Microsoft Corp., TFI International Inc. and Cargojet Inc., each with weightings of between about 4 and 7 per cent.

What Mr. Fantin tries to avoid in his fund are so-called “dividend traps,” which are investments with a high yield but poor performance. Energy is one example, he says, a sector that the fund has been selling off in recent years.

“We tried to dip our toes in every once in a while and every time we get burned,” he says. “Sometimes [energy stocks] just seem so attractive ... even the large-cap integrated – you think they’re insulated a little bit.”

Mr. Fantin sold out of the sector in February, with the exception of a small holding in Pembina Pipeline Corp., just as the sector dropped again amid the fallout from COVID-19. While energy has started to come back a bit, “it’s not a sector we think will be dividend growers,” he says. “We’re past that stage.”

Mr. Fantin has had some big wins lately with holdings such as Jamieson Wellness Inc., Costco Wholesale Corp., Microsoft Corp. and Cargojet Inc. – all of which have seen a huge lift amid the pandemic, for various reasons.

“We had them in there not as big, growthy names, just consistent steady Eddies,” he says. Has also been buying some gold, and has picked up some stocks such as Telus Corp., BCE Inc., Stantec Inc. and Algonquin Power & Utilities Corp.

Below are three picks from Mr. Fantin’s portfolio (all data as of Nov. 17):

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Telus Corp. (T-T)

  • Market cap: $31.7-billion
  • Dividend yield: 5 per cent
  • One-year total return: 2.9 per cent

Data is becoming increasingly critical as people do more work, shopping and exercise online at home during the pandemic, and that’s a trend Mr. Fantin expects to continue. The introduction of 5G will only enhance offerings from internet providers such as Telus, he says.

“We think Telus is one of the better ones,” he says of the company, citing some of the lowest customer churn in the industry and a strong reputation for customer service. He also believes a boost in immigration across Canada could add new customers in years to come.

Telus is also a standout for its Telus Health and Telus International divisions, he says, which should help to drive growth. The company also pays a strong dividend and is expected to keep it up, he says.

The AES Corp. (AES-N)

  • Market cap: US$14.2-billion
  • Dividend yield: 2.7 per cent
  • One-year total return: 18.8 per cent

The Virginia-based power generation and utility company will benefit from a secular shift towards renewable energy in the coming decade, Mr. Fantin says. He also believes president-elect Joe Biden’s clean energy push should help companies like this.

“They’re not just an old, boring company,” he says, citing an energy storage joint-venture with Siemens AG called Fluence, which will sell the lithium-ion battery technologies. “They are the top player in the space,” he says of Fluence, which expects to grow its revenue by 40 per cent annually over the next four years.

He notes AES has also invested in an Australian company that makes prefabricated solar panels and has an alliance with Google Cloud, to provide more efficient energy solutions. The company is expected to raise its dividend annually.

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TFI International Inc. (TFII-T)

  • Market cap: $6.3-billion
  • Dividend yield: 1.5 per cent
  • One-year total return: 60.1 per cent

TFI, one of the largest trucking companies in Canada, is a play on the e-commerce boom that has accelerated amid the pandemic.

“It’s challenging to get exposure in dividend-paying stocks in the e-commerce sector, but fulfilment is one of those opportunities,” Mr. Fantin says.

Trucking is also a highly fragmented industry, and Mr. Fantin says the company has been successful at acquiring companies and quickly integrating them into the business. He notes TFI has done about 90 acquisitions since 2008, including five in the most recent quarter.

“It’s not a sexy industry,” he says, “but it’s these behind-the-scenes companies that build a network and scale that can really do well.”

Read more about the winners of this year’s Lipper Awards

Three small-cap stock picks from Mawer’s $2.5-billion fund manager Jeff Mo

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Top REIT picks of award-winning fund managers as industrial real estate becomes a COVID-era investment darling

These bond funds produced surprisingly strong returns even amid the low interest rate environment

Full list: The 2020 Lipper Fund Award mutual fund and ETF winners

Full list: The 2020 Lipper Fund Award top mutual fund and ETF group winners

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