Rebecca Teltscher, portfolio manager, Newhaven Asset Management
FOCUS: Canadian dividend stocks
Top Picks: Brookfield Renewable Partners, TC Energy, Telus
MARKET OUTLOOK:
While economic data over the past few months have shifted towards a slowing economy, the market has been teetering. In early August, the market had a panic attack due to fears that the economy was on the verge of a recession. Employment numbers were showing clear signs of weakness with job opening numbers falling. However, those same weaknesses have shifted to a positive for the market as a September rate cut is now a surety.
While the fears of a hard landing have mostly receded, we are far more cautious and defensive at the moment. We feel there is a disconnect between the market and the economy and are concerned we may see more volatility as we did in early August. We continue to focus on companies with solid long-term prospects so we can endure a negative market period when it arises. We also prefer companies that pay a substantial dividend so that we can get paid an income during these negative periods and not rely solely on the market price for total returns. We continue to believe the soft landing narrative is a fairy tale as central banks will only cut rates significantly should there be negative economic pressure warranting those cuts.
- Sign up for the Market Call Top Picks newsletter at bnnbloomberg.ca/subscribe
- Listen to the Market Call podcast on iHeart, or wherever you get your podcasts
TOP PICKS:
Brookfield Renewable Partners (BEP.UN TSX)
In May 2024, Brookfield and Microsoft announced the largest-ever corporate clean energy deal for 10.5 GW. Brookfield Renewable will deliver wind and solar power generation to Microsoft between 2026 and 2030 in North America and Europe. Once complete, the project would increase BEP’s total power generation by almost one third. We believe this deal is the first of many corporate PPA’s particularly with technology companies as they require significant power to run data centers. The newest and most powerful GPU chips used for AI consume a significant amount of power, therefore a substantial investment in new and carbon-free power generation will be essential in the near future.
TC Energy is an energy infrastructure company that operates critical and irreplaceable natural gas and oil pipelines as well as power generation in North America. Despite the near-term appreciation in the share price, its valuation is at 15-year lows and its dividend yield is over six per cent. We continue to find TC energy attractive at these levels. We like this company for the long term as we remain bullish on Natural Gas and TC Energy’s ability to transport the molecule across North America. TC Energy delivers 30 per cent of Natural Gas demand across North America with 97 per cent of EBITDA underpinned by rate regulation and long-term contracts. The stability of their earnings coupled with the growth in demand for natural gas should continue to push the stock price higher.
Telus’ shares have been negatively impacted by higher interest rates, competitive impacts, and high capex expenses. However, with an attractive valuation, defensive characteristics and 6.7 per cent dividend yield, we believe Telus shares should outperform in the medium term. Telus is further ahead of its FTTH buildout which should provide greater wireline subscriber traction as well as reduced capex going forward. Competitive intensity should eventually stabilize and while immigration targets in Canada may get reduced, it is still expected to see the fastest population increases of any G7 country. During periods of economic weakness, telcos provide relatively stable earnings as they provide critical services such as internet and mobile cell service. While the rest of the market accelerated in 2024, telco share prices remain depressed. At a time when we feel the market is disconnected from the economy, we feel it is safer to focus on companies with solid dividend yields where we can collect the bulk of our return expectations in the form of a dividend and rely less on market price appreciation.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| BEP.UN TSX | Y | Y | Y |
| TRP TSX | Y | Y | Y |
| T TSX | Y | Y | Y |
PAST PICKS: FEBRUARY 5, 2024
CAE (CAE TSX)
- Then: $26.45
- Now: $24.09
- Return:-9%
- Total Return: -9%
Brookfield Infrastructure Partners (BIP.UN TSX)
- Then: $42.03
- Now: $42.75
- Return:2%
- Total Return: 6%
Emera (EMA TSX)
- Then: $47.67
- Now: $51.40
- Return:8%
- Total Return: 11%
Total Return Average: 3%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| CAE TSX | Y | Y | Y |
| BIP.UN TSX | Y | Y | Y |
| EMA TSX | Y | Y | Y |
