Leslie Lundquist became manager of the Franklin Bissett Canadian High Dividend Fund in 1998. She now co-manages it with Les Stelmach, and they aim to generate regular income from a portfolio with a large weighting in energy stocks. At times, that has been tough—like when world oil prices plunge.
I'm guessing 2014 wasn't your best year ever.
Our absolute return was negative. That's hard to do when you start with stocks with a high dividend yield.
Did the downturn in energy scare you? How much volatility can you stand?
I don't want to pretend that I'm too brave to ever notice bad performance. And some companies are announcing reduced dividends and capital spending. But we live in Calgary, and we're kind of familiar with the boom-and-bust cycle. We're pretty confident that selling now is not in any way maximizing value. If ever there was a time to buy energy, it pretty much has to be now.
But what do you say to a retiree who's counting on dividend income?
Remember that a fund is different from a specific stock. The difference is diversification. Our largest sector is energy—about one-third of our portfolio. But that means that two-thirds is not energy. If you really can't stand a blip in your dividend stream, find something like a bank or a bond, but realize that you're probably going to get very low returns from that.
Have you ever lost sleep at night?
The one time I remember was the income trust announcement in 2006 [when Jim Flaherty proclaimed he would eliminate tax advantages for trusts]. I run an income trust fund, and I wondered: What's the doomsday scenario? Then I realized, well, there is value to these companies. There are still cash streams.
What was your best investment ever?
The best ones are the ones you buy when the market doesn't appreciate them. They're perceived as being sleepy little businesses that have a dividend stream, stable cash flow, but not much of a growth profile. Keyera Corp. [which stores and transports natural gas liquids] was one. We bought in the mid-teens and it peaked out at $95. We sold well in advance of that. The bad thing for a high dividend fund is that the dividend often can't keep up with the share price. They stop meeting our mandate.
And the worst?
Ones where I got greedy. I bought something that looked cheap. I should have bought quality.
What's your favourite metric?
Cash flow. It's the basis of all profitability, all valuation.
What's your favourite movie?
Working Girl (1988). I've seen those people all through my career. I've probably had elements of both of them.