Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
If you’re like most income investors, the market value of your portfolio has fallen steadily for most of the past two years. You don’t have to look far to find the problem. It’s the Bank of Canada, specifically its policy of raising interest rates to fight inflation.
Predictably, the steady stream of rate hikes decimated the bond sector, which in 2022 had its worst bear market in 40 years. But it didn’t stop there. The market price of most dividend-paying stocks have fallen as well, in some cases by more than 25 per cent. Bond proxies such as utilities, pipelines, telecoms, and real estate investment trusts were all hit.
Despite a recent rally, the S&P/TSX Capped Utilities Index was down 15.89 per cent in the year to Nov. 10. The Telecom Index lost 11.64 per cent, and the Capped REIT Index was down 14.07 per cent.
I’m not concerned about the long-term future of these stocks. They’ll all bounce back when interest rates stabilize.
Although most dividend stocks were hit by the interest rate rise, a few of the picks in my Income Investor newsletter have had their prices increase this year, thus providing investors with both cash flow and capital gains. I call them Double Threats. Here are three of them.
Russel Metals (RUS-T)
Russel Metals is one of the largest metals distribution companies in North America. It carries on business in three segments: metals service centres, energy field stores, and steel distributors.
Its network of metals service centres offers an extensive line of metal products in a wide range of sizes, shapes and specifications, including carbon hot-rolled and cold-finished steel, pipe and tubular products, stainless steel, aluminum, and other non-ferrous specialty metals.
Its energy field stores carry a specialized product line focused on tubes, valves, fittings and other needs of energy industry customers in Canada and the United States. The steel distributors operations sell steel in large volumes to other steel service centres and large equipment manufacturers.
The Mississauga company had third-quarter revenue of $1.1-billion and earnings of $61-million (99 cents a share). Both figures were down from 2022 but the business remained strong.
The company announced a 5-per-cent dividend increase in May to 40 cents a share ($1.60 annually). At a recent price of $37.87, the stock yields 4.2 per cent. Meantime, the share price is up about 30 per cent from $28.78 at the end of 2022.
AltaGas Ltd. (ALA-T)
AltaGas, a pipeline and utility company, supplies natural gas for 1.6 million homes and businesses. It operates in five U.S. states, primarily through its WGL subsidiary. They include Virginia, Maryland and Washington, D.C., from which the Calgary company derives around 80 per cent of its earnings.
Its other division operates pipelines that supply natural gas and liquified petroleum gas to its terminals on the West Coast for export to Asia. It also maintains a small portfolio of power assets in Alberta as well as nine U.S. states.
The company released third-quarter results on Nov. 3. Normalized earnings per share came in at 10 cents, the same as last year. That may not seem impressive, but the company said it exceeded expectations and strongly positioned AltaGas to deliver on its 2023 guidance and achieve results in the upper half of the guidance range.
The company announced last December that it expected 2023 earnings per share of between $1.85 and $2.05, compared to $1.89 in 2022.
The stock pays a quarterly dividend of 28 cents ($1.12 per year), to yield 4.2 per cent at the recent price of $26.39. Year-to-date, the stock has gained about 14 per cent from its 2022 close of $23.38.
Canadian Natural Resources (CNQ-T)
This is one of the largest North American energy exploration and production companies. It owns production facilities in Western Canada, the North Sea and offshore Africa. In 2022, it produced 1.281 million barrels of oil equivalent a day, up 4 per cent from 2021. This was driven largely by growth in production in its natural gas assets, which were up 23 per cent.
The Calgary company reported third-quarter results on Nov. 2. Production during the quarter averaged almost 1.4 million barrels of oil equivalent a day, a record. Net earnings were $2.3-billion ($2.13 per diluted share). That was down from $2.8-billion ($2.49 a share) in the same period last year owing to lower energy prices.
The board of directors responded by raising the quarterly dividend by 11 per cent, to $1 a share. The next payment is due on Jan. 5. The yield at the new rate is 4.5 per cent, based on a recent price of $89.09. The share price is up about 19 per cent year-to-date.
We continue to rate all three stocks as buys.
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