Earlier this week, National Bank released an update to its 2021 Dividend All-Stars portfolio.
The firm initially published its recommended list of high-yield securities to own in 2021 on Feb. 16. Since then, the portfolio has outperformed the S&P/TSX Composite Index by a wide margin.
The Dividend All-Stars portfolio has delivered a total return, including the yield, of 24 per cent compared to a total return of 12 per cent reported by the S&P/TSX Composite Index. This outperformance resulted from strong gains in the portfolio’s real estate picks.
Since the initial report was published, four securities have been removed from the portfolio while eight securities have been added.
The following equities were removed: BSR REIT (HOM-U-T), Royal Bank of Canada (RY-T), Summit Industrial Income REIT (SMU-UN-T), and WPT Industrial REIT (WIR-UN-T). Rising share and unit prices with falling yields resulted in BSR Real Estate Investment Trust, Royal Bank, and Summit all being removed from the portfolio. The yields for these three securities fell below the portfolio’s yield requirement of 4 per cent or higher. On Aug. 9, WPT Industrial REIT announced that it was being acquired by Blackstone Real Estate Income Trust at a nice premium (17 per cent above its closing price on Aug. 6). Consequently, it was removed from the portfolio.
The following eight securities were added to the portfolio.
The potential total returns indicated below were published in this report and may have changed due to stock price moves over the past few days.
Alaris Equity Partners Income Trust Royalty Corp (AD-UN-T): According to analyst Zachary Evershed, “Alaris targets an IRR [internal rate of return] of approximately 22 per cent through a combination of initial yield, yield growth, exit premium, and more recently, common equity participation.”
Alaris offers investors an attractive yield, currently around 7 per cent. Mr. Evershed anticipates the Trust will deliver a potential total return of over 40 per cent with his target price set at $23.50.
Allied Properties REIT (AP-UN-T): Analyst Matt Kornack believes the REIT will benefit as more workers return to the office after working remotely for over a year. He highlighted Allied’s healthy balance sheet, and AFFO (adjusted funds from operations) growth, forecasting AFFO per unit to expand to $2.07 in 2021 and $2.29 in 2022.
Mr. Kornack has a target price of $49.25, implying a potential total return of 20 per cent, including the current yield of 4 per cent.
CIBC (CM-T): The analyst has a target price of $159 on this bank stock, which is based on price-to-earnings multiple of 11 times the analyst’s 2022 earnings forecast. The analyst is forecasting earnings per share of $13.85 in fiscal 2021 and $14.50 in fiscal 2022.
Analyst Gabriel Dechaine remarked on the stock’s valuation, “CM has at times been perceived as a bank that has under-invested in its core franchises and addressing that perception is an important component of its long-term valuation re-rating potential. Recent indicators, especially in the Canadian P&C segment, are signs that progress on that front is being made.”
Dexterra Group Inc. (DXT-T): Zachary Evershed also recommends this high-yielding growth industrials stock. Investors may recognize the company under its former name, Horizon North Logistics Inc.
According to Mr. Evershed, “Dexterra is well-positioned for strong organic growth exiting the pandemic as all three segments benefit from catalysts. Without counting on as yet unannounced M&A [mergers and acquisitions], we foresee 20 to 30 per cent top-line growth as DXT emerges from the pandemic.”
With respect to the company’s largest business segment that represents approximately half of the company’s revenue, he said, “WAFES (workforce accommodation, forestry and energy services) is seeing renewed interest in projects and commodity-driven industries, with support required in LNG, mining and remote infrastructure camps.”
Mr. Evershed forecasts revenue to expand to $741-million in 2021, up from $478-million reported in 2020, rising to $872-million in 2022.
With a target price of $9, this implies a total return of 34 per cent, including the 5 per cent dividend yield.
Dream Industrial REIT (DIR-UN-T). Mr. Kormack has a $17 target price on this REIT. The current yield is 4 per cent.
According to the analyst, industry fundamentals are strong, “Demand for industrial real estate has grown since the onset of the pandemic as e-commerce tenants scrambled to add capacity and supply chain disruptions called into question just-in-time inventory approaches. DIR’s existing assets are in markets that are seeing this flurry of demand, combined with constraints on new supply, result in significant rental growth”.
IGM Financial Inc. (IGM-T). Analyst Jaeme Gloyn sees three key attributes justifying his ‘outperform’ recommendation: 1) industry leader, 2) high dividend yield of 5 per cent, and 3) robust earnings growth. His adjusted earnings per share estimates are $3.93 for 2021, up from $3.20 reported in 2020, and $4.40 in 2022. Given his outlook for solid earnings growth, he believes the company has the financial flexibility to hike its dividend by approximately 5 to 10 per cent.
Mr. Gloyn has a target price of $58, implying a potential total return of 35 per cent.
Lundin Mining Corp. (LUN-T). Analyst Shane Nagle has a ‘sector perform’ recommendation on this copper play. He has a target price of $15.50.
He addresses the stock’s recent price weakness stating, “Lundin’s share price performance has been impacted by uncertainty around Chile’s upcoming presidential election/constitutional reform and associated impact on royalty rates in the country. Additionally, the company recently lowered 2021 production guidance at Candelaria (52 per cent of net asset value) and expects 2022/2023 production to be 10 per cent to 15 per cent lower as a result of revised LOM [life of mine] planning. Three-year guidance is anticipated later this year with Chile’s new constitution expected to be ratified in mid-2022 providing more clarity to near-term operating assumptions.”
Despite these near-term headwinds, Mr. Nagle anticipates the share price may deliver a 66 per cent total return to investors. He noted Lundin’s ‘best in class’ balance sheet, strong free cash flow generation, and attractive dividend yield.
Topaz Energy Corp. (TPZ-T). Analyst Dan Payne is forecasting this gas-weighted energy stock to rebound. His target price set at $20, implying a potential total return of 38 per cent. His states, “Dividend and value growth remain evident through unique and high-visibility growth of a high-quality, diversified and differentiated entity, which should continue to yield momentum to shareholder returns.”
Here are the 21 stocks in National Bank’s updated All-Stars portfolio along with their target prices.
1. Alaris Equity Partners Income Trust (AD-UN-T). Target price of $23.50.
2. Allied Properties REIT (AP-UN-T). Target price of $49.25.
3. AltaGas Ltd. (ALA-T). Target price $29.
4. BCE Inc. (BCE-T). Target price $66.
5. Capital Power Corp. (CPX-T). Target price $46.
6. Choice Properties Real Estate Investment Trust (CHP-UN-T). Target price $15.
7. CIBC (CM-T). Target price $159.
8. Crombie Real Estate Investment Trust (CRR-UN-T). Target price $19.50.
9. CT Real Estate Investment Trust (CRT-UN-T). Target price $19.
10. Dexterra Group Inc. (DXT-T). Target price $9.
11. Dream Industrial REIT (DIR-UN-T). Target price $17.
12. Enbridge Inc. (ENB-T). Target price $51.
13. Exchange Income Corp. (EIF-T). Target price $47.
14. IGM Financial Inc. (IGM-T). Target price $58.
15. Keyera Corp. (KEY-T). Target price $36.
16. KP Tissue Inc. (KPT-T). Target price $11.
17. Lundin Mining Corp. (LUN-T). Target price $15.50.
18. Mullen Group Ltd. (MTL-T). Target price $15.50.
19. TC Energy Corp. (TRP-T). Target price $66.
20. Topaz Energy Corp. (TPZ-T). Target price $20.
21. Transcontinental Inc. (TCL-A-T). Target price $28.
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