Earlier this week, National Bank released its 2019 Dividend All-Stars portfolio, which consists of 24 high-yielding securities.
Over the past year, the portfolio has delivered a respectable total return of over 7 per cent, outperforming the S&P/TSX composite index, which rallied 4 per cent over the same investment period.
Highlighted below is a summary of the firm’s top high yielding stock recommendations :
AG Growth International (AFN-T)
Analyst Greg Colman is bullish on this stock, forecasting a total return of over 30 per cent over the next year with his target price set at $71. He believes the company will deliver 10-per-cent top line growth in 2019 with the potential for acquisition growth to drive the company’s revenue growth even higher. The stock is currently yielding nearly 4.5 per cent and has a conservative payout ratio. He notes, “We forecast AFN’s 2019 payout ratio at 40 per cent, well below the 10-year average of 65 per cent.” He argues that the company’s fundamentals are strong, “We continue to see strong demand in AFN’s end markets as our long-term thesis that agriculture infrastructure is underdeveloped remains intact.”
Brookfield Infrastructure Partners LP (BIP.UN-T)
As one of the largest infrastructure companies in the world with operations across five continents, BIP is a high-yield pick by analyst Rupert Merer. He has a target price of US$45.50. Mr. Rupert highlights the company’s stable cash flow profile as “approximately 95 per cent of cash flows are regulated or contracted, of which approximately 75 per cent are indexed to inflation and roughly 60 per cent are without volume risk.” Management targets a FFO (funds from operations) payout ratio of between 60 per cent and 70 per cent. The stock has a current yield of approximately 4.8 per cent.
BSR Real Estate Investment Trust (HOM-U-T)
The REIT owns a portfolio of 50 multi-family residential properties across five U.S. states in the Sunbelt region. This small-cap security has large upside potential according to analyst Matt Kornack. He has a target price of US$11.50. The REIT pays its unitholders a distribution of US$4.17 cents per unit, or 50 US cents per unit yearly, equating to an annualized yield of over 5 per cent. The REIT has a conservative payout ratio in the low to mid-70 per cent range. Mr. Kornack is forecasting modest FFO per unit growth over the next year driven by solid industry fundamentals, “A number of demographic and financial trends continue to push the U.S. towards a higher renter propensity market. The sunbelt itself has also seen the lion’s share of growth given its lower cost environment and access to high-quality employment.” One cautionary note, this small-cap security can be thinly traded.
Capital Power Corp. (CPX-T)
Headquartered in Edmonton, this North American power producer is a high-yielding stock recommended by analyst Patrick Kenny, who has a target price of $35. For income investors, the stock has an attractive dividend yield of 6 per cent, low adjusted payout ratio that is forecast to be below 40 per cent in 2019, and management is guiding to 7-per-cent annual dividend growth through to 2021. The analyst said: “With plans to commit growth capital of approximately $500-million per year on a fully funded basis towards contracted clean energy projects, securing an additional two to four contracted wind developments per year, our bullish investment stance for 2019 continues to come into focus.”
Chemtrade Logistics Income Fund (CHE.UN-T)
Toronto-based Chemtrade is a leading North America’s supplier of industrial chemicals. Chemtrade pays its unitholders a monthly distribution of 10 cents per unit, $1.20 per unit yearly, equating to an annualized yield of over 10 per cent. The unit price collapsed in the fourth quarter from the mid-teens to its present level of over $11. Analyst Endri Leno believes the unit price will recover and has a target price of $16.50. Looking at the stock’s valuation, he notes that the stock is cheap, trading at discount to its peers and relative to its historical levels. He notes Chemtrade is trading at “trough levels” on a forward EV/EBITDA basis (enterprise value-to-earnings before interest, taxes, depreciation and amortization). Based on his forecasts, the 2019 payout ratio is expected to come in at 62 per cent.
Chorus Aviation Inc. (CHR-T)
Headquartered in Halifax, Chorus is the largest regional airline in the country. Analyst Cameron Doerksen believes the stock may deliver a total return (including the 6.7-per-cent dividend yield) of over 30 per cent in the year ahead. The company has predictable, long-term cash flows through its capacity purchase agreement with Air Canada, which pays Chorus a fixed fee and fuel costs are passed through to Air Canada. The analyst applies a 9 times multiple to his 2020 earnings estimate to arrive at his $9 price target.
CT Real Estate Investment Trust (CRT.UN-T)
Toronto-based CT REIT has a portfolio of over 325 properties located across Canada with Canadian Tire being the REIT’s main tenant. The REIT pays its unitholders a monthly distribution of 6.31 cents per unit, or 75.72 cents per unit yearly, equating to an annualized yield of nearly 6 per cent. Analyst Tal Woolley has a $14.50 target price reflecting a potential solid double-digit return. Mr. Woolley suggests, “CRT should handily deliver 2 per cent same-property net operating income growth that should drive 4 to 5 per cent FFO [funds from operations] per unit growth. With further drop-downs, acquisitions and completions, FFO per unit growth of 5 per cent plus is possible, which puts them close to the top of the group for growth.”
Dream Global REIT (DRG.UN-T)
Mr. Kornack’s mid-cap high-yield security recommendation is Dream Global REIT. Dream Global REIT’s portfolio consists of office, industrial and mixed-used properties located in Germany, the Netherlands, Austria and Belgium. He suggests, “Given the increased scale of the portfolio, there are now opportunities for JV [joint venture] asset sales to further diversification and provide capital for future acquisition activity while augmenting FFO through management fee income.” Mr. Kornack has a target price of $15.50, implying a P/AFFO multiple (price-to-adjusted funds from operations) of 16 times his 2019 estimate. The REIT pays its unitholders a monthly distribution of 6.667 cents per unit, or 80 cents per unit yearly, translating into an annualized yield of over 6 per cent.
Enbridge Inc. (ENB-T)
Enbridge has an energy infrastructure network of crude oil, liquids and natural gas pipelines across North America. The company’s regulated utilities provides service to retail customers in Ontario, Quebec and New Brunswick. Mr. Kenny has a target price of $59. He notes, “The company has a $16-billion secured growth capital program for 2019 to 2020, most notably the $9-billion Line 3 Replacement project being placed into service by the end of 2019.” Mr. Kenny expects AFFO per share to climb to $5.02 in 2020, up from his forecast of $4.33 in 2019. In December, the company announced a 10-per-cent dividend hike, lifting its quarterly dividend to 73.8 cents per share, translating to an annualized yield of 5.5 per cent. Management also said that they expect to hike the dividend by 10 per cent for 2020.
Exchange Income Corp. (EIF-T)
Winnipeg-based EIC is an acquisition driven, diversified company with two operating segments: aerospace and aviation and manufacturing. Mr. Doerksen has a target price of $42. His 2019 EBITDA estimate is $318-million, up 13 per cent year-over-year. He remarks, “We see organic growth for EIF’s aviation/aerospace portfolio in the maritime surveillance segment and as EIF’s contract to support Canada’s new search and rescue aircraft ramps up in the coming years.” The annualized dividend yield is currently 7.4 per cent, which Mr. Doerksen views as sustainable.
Fiera Capital Corp. (FSZ-T)
Montreal-based Fiera Capital is an independent asset management firm with operations in North America, Europe and Asia. Analyst Jaeme Gloyn has a target price of $16. His “outperform” recommendation is supported by the company’s low valuation with the stock trading at a two point discount (at a forward EV/EBITDA of approximately 9 times) relative to its historical average multiple (approximately 11 times). Mr. Gloyn notes, “FSZ maintains a dividend policy to increase every other quarter supported by: a roughly 7 per cent free cash flow yield expected in 2019, positive net sales, and quality AUM [assets under administration] growth.” The company pays its shareholders a quarterly dividend of 20 cents per share, or 80 cents yearly, equating to an annualized yield of 6.6 per cent.
Genworth MI Canada Inc. (MIC-T)
Through its subsidiary, the company is the country’s largest private residential mortgage insurer. Mr. Gloyn remains bullish on the stock, even as the share price approaches its record closing high. He has a $51 price target supported by tailwinds including, “Loss ratio outperformance, positive gearing to rising interest rates, strong capitalization levels, de-risked product and a strong management team.” The current dividend yield is 4.5 per cent.
H&R Real Estate Investment Trust (HR.UN-T)
H&R REIT has ownership interests in office, retail, industrial and residential properties across North American. Mr. Kornack has a target price of $26.50. He sees potential growth opportunities as the “H&R/Tishman Speyer joint venture commenced in Long Island City, NY., for the development of 1,871 rental units and approximately 15,000 square feet of retail space and is currently progressing as expected. The project is on track to be stabilized by the end of 2019.” The REIT pays its unitholders a monthly distribution of 11.5 cents per unit, $1.38 per unit yearly, equating to an annualized yield of 6.1 per cent.
High Arctic Energy Services Inc. (HWO-T)
Calgary-based High Arctic provides oilfield services to oil and gas companies located in Canada, the U.S. and Papau New Guinea. Mr. Colman has a target price of $4.50, calculated by using a 2020 EV/EBITDA multiple of 3.5 times, which is slightly above the stock’s historical average of 3.2 times. “With the medium to long-term prospects for LNG activity in PNG looking solid, we expect all of HWO’s PNG rigs to be busy in 2020, resulting in a meaningful year-over-year EBITDA increase and a sub-30 per cent payout ratio in 2020.” The company pays its shareholders a monthly dividend of 1.65 cents per share with the current dividend yield at 5.3 per cent.
Innergex Renewable Energy Inc. (INE-T)
Innergex is an independent renewable power producer with operations in Canada, the U.S., France, Chile and Iceland. Mr. Merer has a target price of $17.50. His investment thesis is, “INE is a conservative investor with longer life assets than peers and a focus on dividend growth and sustainability.” The stock is currently yielding 4.7 per cent. Furthermore, he views the stock has having a potential catalyst, noting: “INE could sell its stake in HS Orka or it could look to sell down ownership in other assets.”
Keyera Corp. (KEY-T)
Calgary-based Keyera is an integrated midstream operator. Mr. Kenny has a target price of $40. “We forecast 2023 AFFO per share of $3.20, representing a roughly 3 per cent five-year CAGR [compound annual growth rate]. However, we highlight upside to our AFFO per share outlook related to the company sanctioning its over $1-billion Key Access Pipeline System (KAPS) in 2019, providing incremental fully funded growth through 2023.” The current yield is 6.4 per cent. Mr. Kenny anticipates the dividend will increase by 6 per cent annually until 2020.
NFI Group Inc. (NFI-T)
Winnipeg-based NFI is North America’s largest bus manufacturer with 31 facilities across Canada and the U.S. With a target price of $46, Mr. Doerksen expects the share price to snap back after sliding throughout much of 2018. He argues, “NFI’s strong backlog ($5.4-billion) therefore provides good visibility for bus deliveries and revenue through our forecast period. Transit bus demand, which we estimate accounts for 50 per cent plus of total company EBITDA, is supported by the current U.S. federal funding bill, which is in place through 2020.” The current dividend yield is 4.5 per cent.
Northland Power Inc. (NPI-T)
Northland Power is an independent power producer with thermal and on-shore renewables facilities located in Canada and offshore wind projects located overseas. Mr. Merer has a price target of $26, implying a modest total return of approximately 10 per cent (including the 4.8-per-cent dividend yield). Mr. Merer asserts, “Our analysis indicates that NPI has the lowest cash flow duration in its peer group (approximately six years), with generous but relatively short offshore wind contracts. This implies lower rate risk for NPI.”
Pattern Energy Group Inc. (PEGI-T)
According to Mr. Merer, Pattern Energy is the independent power producer with greater potential upside potential. Pattern Energy holds interests in 24 wind and solar projects located in Canada, the U.S., and Japan. Mr. Merer has a target price of US$25. He maintains, “In Q4 [fourth-quarter], PEGI sold its stake in the K2 wind farm for $160-million and bought 51 per cent of the 35 MW Stillwater project … Although there is a drag on cash flow in H1 [first half of 2019] on the sale of K2, growth should compensate for the headwind in H2 [second half of 2019].” The stock has a current dividend yield of 8 per cent.
Pembina Pipeline Corp. (PPL-T)
Calgary-based Pembina is a transportation and midstream service provider serving the North American oil and gas industry. Mr. Kenny is forecasting, “2020 AFFO per share of $4.85 and a five-year AFFO per share CAGR through 2023 of approximately 3 per cent, reflecting a payout ratio of roughly 50 per cent.” The company pays its shareholders a monthly dividend of 19 cents per share, or $2.28 per year, equating to an annualized yield of just under 5 per cent.
SmartCentres Real Estate Investment Trust (SRU.UN-T)
Analyst Tal Woolley has a $33 target price. His bullish outlook is driven by SRU’s largest tenant, Walmart. He said: “Walmart’s continued market share gains underline its drawing power as an anchor tenant (over 80 per cent of SRU’s GLA [gross leasable area] is in Walmart-anchored properties), which we believe will be supportive of valuations across SRU’s portfolio.” The REIT offers investors a current yield of 5.4 per cent.
Sun Life Financial Inc. (SLF-T)
Analyst Gabriel Dechaine has a $55 target price based on an equally-weighted forward price-to-earnings multiple of 10.5 times and a price-to-book multiple of 1.3 times the analyst’s 2020 estimates. He notes the company’s strong balance sheet and financial ability to increase its share buyback program. “Given the company’s recent track record of generating better-than-expected EPS [earnings per share] growth and strong balance sheet, we expect SLF to announced another dividend increase of 2.5 cents per share in Q1/19 and every two quarters thereafter.” The current dividend yield is just over 4 per cent.
Telus Corp. (T-T)
Vancouver-based Telus is a leading telecommunication company in Canada. Analyst Adam Shine has a $50 target price. The current dividend yield is 4.7 per cent. He anticipates the dividend will increase 8 per cent in 2019. Looking further out, “Post-2019 dividend hikes might reflect growth of 5 per cent and 7 per cent amidst free cash flow gains as capex falls from a 2017 peak.” Mr. Shine adds that he is “monitoring the competition with Shaw and Canada’s decision on Huawei.”
Transcontinental Inc. (TCL.A-T)
Montreal-based Transcontinental is Mr. Shine’s other high-yield stock recommendation; however, this stock has a higher potential total return. He has a target price of $25. He remarks, “TCL’s confident that it can extract more than the U.S.$20-million of savings initially promised from last year’s Coveris purchase. While revenue growth at Coveris isn’t expected until after fiscal 2019, synergies will serve as a key driver of segment margins which we see expanding from 11.9 per cent in fiscal 2018 to 13.5 per cent in fiscal 2019 and 14.5 per cent in fiscal 2020.” The stock has a current dividend yield of 4 per cent.
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