National Bank boosts its Dividend All-Stars portfolio to 29 securities

Share

On Tuesday, National Bank Financial updated its Dividend All-Stars portfolio, raising the number of holdings to 29 from 27.

There were five stocks added to the portfolio, while three stocks were removed.

The rationale for each change is highlighted below, along with the complete list of 29 securities.

Five additions

CanWel Building Materials Group Ltd. offers investors a juicy yield of over 9 per cent in addition to a potential price return of 18 per cent, according to analyst Leon Aghazarian, who has a $7 target price. He anticipates management could announce another acquisition before year end. Another potential catalyst is improving margins. Mr. Aghazarian said: "CWX to benefit from ongoing cost-cutting initiatives comprised of synergies and the replacement of older equipment with more productive ones thus enhancing efficiency." He sees the free cash flow payout ratio declining to between 80 per cent and 85 per cent in 2018.

Canadian Imperial Bank of Commerce was another recent addition. Analyst Gabriel Dechaine has a target price of $125 based on a price-to-earnings multiple of 11 times his 2018 earnings forecast. He argues that the current dividend has room to expand and expects a rate hike announcement in the third quarter. In addition, he believes the company's valuation may increase, noting: "Over the past year, CIBC's 42 per cent growth in uninsured residential mortgages was over four times the Big-6 peer average" and that this significant exposure has weighed the share price down. He believes this overhang on the stock will lift with the multiple expanding.

High Arctic Energy Services Inc. is the third portfolio addition. Analyst Gary Colman has a target price of $7, implying the share price may rise over 90 per cent. He believes the dividend (currently yielding over 5 per cent) is sustainable, stating: "High Arctic's payout ratio is among the most stable in our coverage universe, ranging between an estimated 19 per cent and 24 per cent the last four years" and anticipates management could announce a dividend hike "in the near future." He also sees a solid balance sheet, strong management team, diversified customer composition, and a "gradually improving macro environment".

Pembina Pipeline Corp. is recommended by analyst Patrick Kenny, who has a target price of $50. He believes the company's adjusted funds from operations will grow at an annual rate of 22 per cent though mid-2019, and anticipates a 6-per-cent dividend increase in 2017.

Rocky Mountain Dealerships Inc. is the final addition to the portfolio. Analyst Gary Colman has a target price of $13.50, implying a potential total return of approximately 33 per cent. Channel checks suggests demand for agriculture equipment is improving. Mr. Colman anticipates approximately, "41 per cent EBITDA (earnings before interest, taxes, depreciation and amortization) growth in 2017, and a minimal capex spend (1 per cent of sales)." with a dividend payout ratio below 40 per cent.

Three deletions

Pason Systems Inc. (PSI-T) was removed from the portfolio. Rogers Communications Inc. (RCI.B-T) was eliminated from the portfolio given the stock's price appreciation, and Veresen Inc. (VSN-T) was removed from the dividend portfolio due to the takeover offer by Pembina Pipeline Corp.

=====

Listed below is the complete list of 29 securities held in the Dividend All-Stars portfolio. National Bank compartmentalizes the portfolio into 10 industry exposures, reflecting a diversified portfolio comprised of high quality companies that provide stable income.

Real Estate

There are seven securities represented from the real estate sector. Here they are in alphabetical order: American Hotels Income Properties REIT LP (HOT.UN-T), H&R REIT (HR.UN-T), Killam Apartment REIT (KMP.UN-T), Pure Industrial REIT (AAR.UN-T), Pure Multi-Family REIT LP (RUF.UN-X), Smart REIT (SRU.UN-T), and WPT Industrial REIT (WIR.U-T).

Financials

The four stock selections from the financial sector are: CIBC (CM-T), First National Financial Corp. (FN-T), MCAN Mortgage Corp. (MKP-T), and Timbercreek Financial Corp. (TF-T).

Energy

High Arctic Energy Services Inc. (HWO-T), Pattern Energy Group Inc. (PEGI-Q), and Vermilion Energy Inc. (VET-T).

Power

Algonquin Power & Utilities Corp. (AQN-T), Capital Power Corp. (CPX-T), and Innergex Renewable Energy Inc. (INE-T).

Infrastructure

Bird Construction Inc. (BDT-T) and Brookfield Infrastructure Partners LP (BIP.UN-T)

Industrials

Ag Growth International Inc. (AFN-T) and Rocky Mountain Dealerships Inc. (RME-T)

Transportation

Exchange Income Corp. (EIF-T) and Student Transportation Inc. (STB-T)

Pipeline/Utilities

Keyera Corp. (KEY-T) and Pembina Pipeline Corp. (PPL-T)

Materials

CanWel Building Materials Ltd. (CWX-T)

Diversified

Crius Energy Trust (KWH.UN-T), Enercare Inc. (ECI-T), and KP Tissue Inc. (KPT-T).