Where’s the Canadian dollar going? What about oil prices? And is the next leg in interest rates up or down?
Renato Anzovino is the first to admit he does not know. However, the director of the60-million Heward Canadian Dividend Growth Fund says his investment plan does not rely on making such forecasts. Instead, he attempts to identify companies that could thrive in almost any environment.
Among the first things he looks for is a steadily rising dividend. “That confirms to us that the underlying company is strong and the outlook going forward is positive,” Mr. Anzovino states.
The fund produced an annualized total return — such as dividends — of 11.3 percent for the five years ended Oct. 31, beating the Samp;P/TSX composite index’s comparable return of 8.4 percent. (As a pooled fund, Heward Canadian Dividend Growth reports results before fees, which vary from 1 to 1.5 percent based on the size of a customer’s investment.)
An increasing dividend is not the sole factor Mr. Anzovino believes. He also looks for relatively predictable earnings, low debt levels, increasing free cash flow and an attractive valuation. Here are just five of the fund’s current holdings.
Canadian Tire ()
Mention Canadian Tire Corp., and most individuals think of the namesake stores that sell hardware products, household items and sporting goods. However, the company also has its financial services department, owns extensive property resources and operates other retail banner such as Mark’s, Sport Chek, Pro Hockey Life and Atmosphere. The organization’s diverse product mix and available places have insulated it from online contest and contributed to increasing same-store earnings, including growth of 3.9 percent in the third quarter. Canadian Tire has been increasing its dividend annually and recently announced an unusually large increase of 38 percent together with its newest results.
Intact Financial ()
Intact Financial Corp. is the largest property and casualty insurer in Canada, working through the Intact, belairdirect, Brokerlink and OneBeacon brands. With an estimated 17-per-cent market share, the provider’s scale enables it to streamline costs and boost profitability, Mr. Anzovino states. Nevertheless the insurance market remains highly fragmented, providing tons of chance for the company to continue its growth-through-acquisitions strategy. The stock’s yield may be small, but the dividend has increased at an annualized rate of almost 10 percent over the previous five decades and Mr. Anzovino sees more growth ahead. Intact’s recent purchase of U.S.-based specialty insurer OneBeacon Insurance Group is a “game changer,” he says, as it provides the company a platform for growth in the U.S. market.
With wireless data usage continued to grow, smartphone penetration raising and immigration earning a steady supply of customers, the long-term outlook for the wireless industry is quite favourable, Mr. Anzovino states. Telus Corp. is also profiting from rebounding economic growth in Western Canada and by the lowest customer turnover or “churn” rate in the market, because of its strong customer support. Recent results have been strong: The organization added 152,000 mobile, internet and TV accounts in the third quarter . The business also raised its dividend by about 2.5 percent — its second growth of this year — bringing total dividends declared in 2017 to $1.97 per share, up 7.1 percent from $1.84 in 2016. And there is probably more to come: Telus intends to keep on raising its dividend twice a year at an annualized rate of 7 percent to 10 percent through 2019.
Open Text ()
Shares of enterprise applications giant Open Text Corp. have fought, reflecting concerns about an increase in the provider’s debt ratios after a series of acquisitions, Mr. Anzovino states. But the business generates strong free cash flow and must be able to bring down its debt to more manageable levels, he says. The stock trades at a multiple of about 13 times estimated earnings for the year ending in June, 2018. And the dividend — that was initiated in 2013 and is announced in U.S. dollars — has been climbing at an annualized rate of about 15 percent over the previous four decades. The attractive valuation, growing dividend and Open Text’s experience at driving increased profitability from acquisitions create the inventory an appealing pick in a business world that is increasingly going digital, ” he says.
Cineplex Inc. shares have dropped about 24 percent this year, representing a weak record of releases and worries that the film business is in decline at the hands of Netflix and other streaming choices. However, Mr. Anzovino says the fears are overblown: Following a spate of summer duds, recent films like Thor: Ragnarok and the soon-to-be-released Star Wars: The Last Jedi herald a turnaround in the box office. There is also more to Cineplex than films.
The business operates Playdium entertainment centers, hosts aggressive gaming events, operates a growing network of electronic screens in restaurants, malls, banks and other places and is enlarging its Rec Room series of dining and entertainment centers. “The business is transitioning from a movie theater operator into a truly diversified entertainment company,” Mr. Anzovino states. Cineplex’s dividend has increased at an annualized rate of 4.9 percent over the previous five decades.