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David Sykes likes dividend stocks, but it’s not the yield he’s watching. Instead, the managing director and head of fundamental equities at TD Asset Management prefers to focus on a company’s dividend growth and how sustainable it is.

“I’m really all about businesses that have a competitive advantage, can grow, have very strong balance sheets and generate cash flow and grow their dividends year after year,” says Mr. Sykes, who manages $8.5-billion across five funds, including TD’s North American Dividend Fund. That fund returned 5 per cent in the 12 months ended March 31 and, on an annualized basis, 13.8 per cent for the previous five years and 8.5 per cent over the past 10 years.

The Globe and Mail recently spoke with Mr. Sykes about the stocks he’s been buying and selling, with a focus on U.S. companies, and the one stock he wished he added to when its price sank last year.

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What concerns are you hearing from investors today?

After a fantastic run in stocks, the concerns they’re focusing on are whether inflation will come back in a meaningful way and will central banks, in particular the U.S. Federal Reserve, have to raise rates more than expected, which would be negative for stocks. The concern is the chain of events. Investors are also worried about whether it’s the end of the cycle. Does this mean equities are going to go down [significantly]? Our view is that inflation is coming back slowly and that rates have and will continue to go up, but we don’t believe ... it will mean we have any excessive downward movements in equity markets.

Why do you believe that?

One reason I believe that is because I invest in individual companies and put them together to create a portfolio. If you look at the vital signs of U.S. corporations, they’ve never been better with high margins, solid balance sheets and, while interest rates are up, they’re still very low. The U.S. economy is doing very well. Earnings are up by about 25 per cent year-over-year. There are lots of things to worry about in the world – geopolitical and trade – but if you look at what we invest in, which are companies, they’re in healthy shape.

What stocks have you been buying lately?

My turnover tends to be low. We have had the opportunity [with the recent market volatility] to add to a stock we already own, which is Visa (V-N). People think of it as a financial company. It’s more of a technology company. They have this amazing payment network that’s really a toll road. Visa collects the fee. It pays a dividend, but, more importantly, it grows the dividend. The other one is Chevron (CVX-N), a large U.S. integrated oil company. We added [to our position] about four or five months ago. [I believe] it will benefit all along the value chain. The company has been disciplined on operating and cost expenses and has grown its dividend at a nice clip.

What have you been selling?

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In general, if we get our process right, I am loath to sell a stock. I don’t like selling stocks because I’m not worried about the next three months. That said, one we sold out of recently is Wells Fargo (WFC-N). I very much like U.S. banks. There has been a lot of deregulation for U.S. banks. We have higher interest rates, finally, that will help to improve their margins. They generate a lot of excess capital and are able to leverage technology in a way that allows them to better serve their customers and control costs. I think U.S. banks are set up very well [for the next few years]. The exception is Wells Fargo. For us, the tipping point was when the U.S. Federal Reserve said recently the bank could no longer grow its assets until it meets certain regulatory and compliance hurdles. That was our sign to exit.

What’s the one stock you wish you bought?

Costco (COST-Q) is a stock we own, but wish we had more of. A lot of people understand Amazon and its disruptive nature. When Amazon (AMZN-Q) announced it was buying Whole Foods [in mid-June, 2017], it had a negative impact on Costco’s stock. I wished we had loaded up on Costco then because it has an amazing business model. Its earnings, cash flow and dividend growth have been outstanding.

This interview has been edited and condensed.

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