National Bank released an update to its 2020 Dividend All-Stars portfolio on Wednesday.
The firm initially published its recommended list of high-yield securities to own in 2020 on Feb. 10. Since then, the portfolio has underperformed the S&P/TSX Composite Index.
The Dividend All-Stars portfolio has delivered a total return, including yield, of negative 26 per cent compared to a total return of negative 4 per cent reported by the S&P/TSX Composite Index.
This underperformance resulted from a significant exposure to the real estate sector (representing 26 per cent of the companies) as well as the energy sector and a low exposure to the technology and materials (gold and silver) sectors. Many of these companies do not pay a dividend or have low dividend yields.
Since the initial report was published, seven securities have been removed from the portfolio while five securities have been added.
The following have been removed: Chorus Aviation Inc. (CHR-T), Enerflex Ltd. (EFX-T), H&R REIT (HR-UN-T), Pason Systems Inc. (PSI-T), Secure Energy Services Inc. (SES-T), Sienna Senior Living Inc. (SIA-T), and SmartCentres REIT (SRU-UN-T).
Chorus Aviation was removed from the portfolio after the dividend was suspended. Enerflex was deleted from the portfolio after the dividend was slashed by 83 per cent. Similarly, H&R REIT, Pason Systems, and Secure Energy Services all cut their dividends and as a result were removed from the All-Stars portfolio. Finally, Sienna Senior Living and SmartCentres REIT were subtracted from the portfolio given the negative impacts from COVID-19.
Conversely, these equities were added to the group:
* Alaris Royalty Corp. (AD-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.”
The company offers investors an attractive yield, currently at 9 per cent, and has a conservative payout ratio of between 65 per cent and 75 per cent. Mr. Evershed anticipates the stock will deliver a potential total return of 28 per cent with his target price set at $15 target price.
* Brookfield Infrastructure Partners L.P. (BIP-UN-T): Analyst Rupert Merer He highlighted BIP’s defensive attributes and distribution growth, noting: “About 95 per cent of its cash flows are regulated or contracted, with approximately 75 per cent indexed to inflation and roughly 65 per cent carrying no volume risk.” He adds that, “BIP has grown distributions at a CAGR [compound annual growth rate] of 11 per cent since 2009 and targets 5 to 9 per cent organic growth per year”. The current yield is 4.4 per cent.
Mr. Merer has a target price of US$52.
* Choice Properties Real Estate Investment Trust (CHP-UN-T): Toronto-based Choice Properties has a portfolio of over 700 properties with Loblaw Companies Limited being its primary tenant.
Analyst Tal Woolley said: “CHP has one of the most defensive portfolios in retail, deriving 56 per cent of its rent from Loblaw, and with over 75 per cent of its retail portfolio leased to necessity based tenants. CHP’s leases with Loblaw have a weighted average term to maturity of approximately eight years with very limited maturities until 2023. The REIT also has a strong financial sponsor with George Weston Limited holding a 63 per cent interest in the REIT.”
Mr. Woolley has a target price of $13. The current yield is 5.8 per cent and the AFFO payout ratio is 89 per cent based on the analyst’s 2020 forecast.
* Crombie Real Estate Investment Trust (CRR-UN-T): Mr. Woolley also recommended this defensive high-yielding REIT for the All-Stars portfolio. He highlights CRR as having a “defensive portfolio structure [that] provides stable cash flows.”
He noted: “CRR has one of the longest weighted average terms to maturity on leases in the Canadian public retail REIT universe at 9.9 years. CRR generates 75 per cent of its annual minimum rents from grocery and pharmacy anchored properties”.
Grocery chain Sobeys is the REIT’s largest tenant. The analyst has a target price of $14.50 and the current yield is 6.8 per cent.
* TransAlta Renewables Inc. (RNW-T). Mr. Merer has a $17.50 target price on this renewable independent power producer with wind farms, hydro facilities, a natural gas plant, and solar assets.
He remarked on a potential catalyst: “With interest from a few activist shareholders, parent company, TA [TransAlta Corp.], could see change. RNW could be helped by being spun out as this could support increased growth at higher returns, higher leverage and generation of new tax shields.”
Here are the 21 stocks in National Bank’s updated All-Stars portfolio.
- Alaris Royalty Corp. (AD-T). Mr. Evershed has a target of $15. The current yield is 9 per cent.
- AltaGas Ltd. (ALA-T). Analyst Patrick Kenny has a target of $20. The current yield is 5.4 per cent.
- BCE Inc. (BCE-T). Analyst Adam Shine has a target of $64 on this telecom stock. The current yield is 5.8 per cent.
- Brookfield Infrastructure Partners LP (BIP-UN-T). Mr. Merer has a target of US$52. The current yield is 4.4 per cent.
- BSR Real Estate Investment Trust (HOM-UN-T). Analyst Matt Kornack has a target of US$12. The current yield is 4.8 per cent.
- Capital Power Corp. (CPX-T). Analyst Patrick Kenny has a target of $38. The current yield is 7 per cent.
- Choice Properties Real Estate Investment Trust (CHP-UN-T). Mr. Woolley has a target price of $13. The current yield is 5.8 per cent.
- Crombie Real Estate Investment Trust (CRR-UN-T). Mr. Woolley has a target of $14.50. The current yield is 6.8 per cent.
- CT Real Estate Investment Trust (CRT-UN-T). Mr. Woolley has a target of $15.50. The current yield is 5.8 per cent.
- Enbridge Inc. (ENB-T). Mr. Kenny has a target of $56. The current yield is 7.5 per cent.
- Exchange Income Corp. (EIF-T). Cameron Doerksen has a target price of $36. The current yield is 7.2 per cent.
- Genworth MI Canada Inc. (MIC). Cameron Doerksen has a target of $36. The current yield is 7.2 per cent.
- Intertape Polymer Group Inc. (ITP-T). Mr. Evershed has a target of $17.50. The current yield is 4.9 per cent.
- Keyera Corp. (KEY-T). Mr. Kenny has a target of $28. The current yield is 7.7 per cent.
- KP Tissue Inc. (KPT-T). Mr. Evershed has a target of $16. The current yield is 6.2 per cent.
- NFI Group Inc. (NFI-T). Mr. Doerksen anticipates the share price may rally to $22. The current yield is 5.2 per cent.
- Pembina Pipeline Corp. (PPL-T). Mr.Patrick Kenny has a target of $39. The current yield is 7.1 per cent.
- Royal Bank of Canada (RY-T). Analyst Gabriel Dechaine has a $106 target. The current yield is 4.4 per cent.
- TransAlta Renewables (RNW-T). Mr. Merer has a $17.50 target on this renewable independent power producer. The current yield is 6 per cent.
- Transcontinental Inc. (TCL-A-T). Analyst Adam Shine has a $18 target. The current yield is 5.7 per cent.
- WPT Industrial REIT (WIR-U-T). Mr. Kornack has a target of US$15.25. The current yield is 5.9 per cent.
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