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Tony Courtright says the area of the stock market he tracks - high-dividend pipelines and power generators - is supposed to be boring. But a series of unusual events over the past few years have swung it from a minefield for the foolhardy to one of the hottest destinations for shell-shocked investors - a wild ride that has left it looking a little tired.

"It's been a confluence of outperformance, from the point of view of a share-price appreciation from an unwarranted correction, plus the ongoing higher yield that these securities exhibit," said the Scotia Capital analyst, who tops StarMine Corp.'s rankings of 11 Canadian utilities analysts based on the performance of his stock picks over the tumultuous past 36 months.

Mr. Courtright's recommendations have outperformed the overall sector benchmark by 10.8 per cent in that time - beating out the 10.2-per-cent outperformance by Bob Hastings of Canaccord Genuity. That's hardly a massive outperformance over a three-year span, but considering the roller coaster high-yielding utilities have ridden, merely being able to hold on and keep your head up is saying something.

Most of the companies Mr. Courtright tracks were income trusts before the Canadian government announced in 2006 its intention to radically change the tax structure on these high-yielding securities - a move that sent their prices tumbling as uncertainty reigned over the future of the trusts. Then, in 2008, the credit crisis dealt another harsh blow, as high-income-oriented stocks got lumped in with corporate bonds, seeing their yield spreads spike amid rampant fears over corporate-debt risk.

"They really took it on the chin," Mr. Courtright said. "They sank very deeply - I believe far, far lower than they should have. Most of them had no disruptions to their underlying cash flows."

But in the market recovery, many burned investors sought the safety and stability of the utilities sector and its steady stream of dividend payments - which looked even more attractive given the elevated yield percentages they offered. The result: The S&P/TSX utilities index is up about 50 per cent over the past two years.

"There are very high current valuations because of a preponderance of a desire for people to get yield income," he said. "People have been buying and bidding these prices up so that the yields now are lower, in some instances, than the conventional equities that have traditionally had a much lower cash payout ratio."

StarMine - a stock market analytics service owned by Thomson Reuters - generates "industry excess returns" scores by using each analyst's stock recommendations to create a "long-short" investing strategy - mimicking the effect of going long on stocks the analyst rates "buy" and shorting the stocks he or she rates "sell". This way, the analyst gets credit for both "buy"-rated stocks whose returns exceed the overall industry benchmark, and "sell"-rated stocks whose returns underperform the benchmark. (Stocks rated "strong buy" or "strong sell" are awarded double credit; ratings of "hold" or "neutral" receive no score.)

While Mr. Courtright says he got "lucky" to produce the top score in his sector over the past three years, the details of his StarMine score suggest he showed a knack for knowing when to avoid a stock. During periods when various stocks under his coverage (which include both power generators in the utilities sector as well as pipelines, which fall under the energy sector) were rated "sell" by Mr. Courtright, their average price gain was a thin 5 per cent; the stocks he rated "buy", meanwhile, produced average gains of 32 per cent.

Despite the fact that the stocks he tracks are known for their high income streams - people buy them for the big dividends, essentially as a higher-yielding alternative to bonds - Mr. Courtright says the focus of his recommendations is on the same thing many equity analysts in other less income-intensive sectors seek.

"I'm looking for their growth outlook," he said. "Unless they've got some growth to propel their dividends higher, then they're just sort of parked money - but paying a very good rate at the clock," he said. He said this growth can come either internally within the organization or through acquisitions.

His favourite pick right now is Algonquin Power & Utilities Corp. , a former income trust that Mr. Courtright describes as "a fallen angel that's rising phoenix-like from the ashes." Algonquin was forced to slash its cash distributions by 74 per cent during the credit crisis, "but in the process it completed a transformation from stripes to spots," he said.

"Its business plan is fundamentally altered. It's a low-payout, dividend-growth story now."

He said the company has been growing through acquisitions, and its lower payout rate leaves it lots of room to increase dividends as it grows.

"Its yield is very low. But it has transformed itself. I think it has the capacity to become a real dividend-growth story."

He added that Algonquin "looks inexpensive" relative to other stocks in the group based on its enterprise-value-to-EBITDA ratio - a key measure he uses to indicate the cash-flow-generating capacity of the business relative to its market value.

"I like a lot of other names, but I think they have become very expensive," he said.

"For the most part, I don't think [stock prices in the sector]are going very far … I don't think one should expect any material share-price appreciation. That is because, for the most part, they don't have enough cash to reinvest to grow their business. They're capital-intensive businesses," he said.

"In the last three years, they were a phenomenal buy," he said. "But through a normal business cycle, they may not perform as well.

"This should be boring - because it's a utility, you want safety, and therefore you really aren't going to get the sort of returns you have in the last year or two. They've been unusual."

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