One stock was added and four were removed from National Bank’s “Dividend All-Stars portfolio” for the second half of 2024.
The list contains 18 of the firm’s “favourite yield ideas” with the following three investment criteria: a dividend/distribution yield of approximately 5 per cent or greater; a “good chance for growth in the payout, with a low risk of a cut”; and “a positive bias regarding the prospects of the company and/or share price.”
For the first half of the year (from Feb. 9), the portfolio returned 10.81 per cent versus a 11.35-per-cent gain for the S&P/TSX composite. Over the past 12 years, it has outperformed the broader index at 11.0 per cent per year versus 8.9 per cent.
“The purpose of the NBF Dividend All-Stars portfolio is to provide income-seeking investors with high quality companies towards which NBF Analysts generally hold a positive view,” the analysts said in a research report released Tuesday. “For the updated portfolio for 2024, the average 5.9-per-cent yield is attractive despite high in interest rates (10-year Canada yield at 3.16 per cent, consistent with our last review in mid February 2024).
“Six companies increased dividends since the last publication (February 2024) including Capital Power, Gibson Energy, Mullen Group, RioCan REIT, Topaz Energy and TC Energy. Dividend increases have continued to significantly outpace reductions; including the first half of 2024, there have been 161 dividend increases versus 11 reductions since the initial 2012 publication.”
Sienna Senior Living Inc. was added to the portfolio in the latest update.
“SIA offers investors a steady yield of 6 per cent, thanks to its ownership of long-term care (LTC) assets, alongside growth related to its retirement platform,” said analyst Giuliano Thornhill. “We are comfortable with the LTC redevelopment risk that compensates investors with additional yield, and as the retirement rebound continues to take shape, expect steadily improving credit metrics to support this payout.”
Mr. Thornhill has an “outperform” recommendation and $17.50 target for Sienna shares. The average target on the Street is $17.21, according to LSEG data.
Stocks removed from the list are:
Northland Power Inc. (NPI-T)
Analysts: “The payout ratio could be high for a couple of years, so dividend increases are unlikely. With a change in CEO, a strategy reset is possible and investors in the sector are increasingly more interested in organic growht and less in dividends.”
Primaris REIT (PMZ.UN-T)
Analysts: “We moved to [a “sector perform” rating] due to economic backdrop that has us taking an increasingly defensive tack (consumers are stretched and rates remain a risk to consumption).”
Telus Corp. (T-T)
Analysts: “The stock has moved lower in our Telecom pecking order, with guidance revised for the second year in a row with Q2 reporting and its pricing structure serving to undermine growth amid elevated competitive intensity.”
Secure Energy Services Inc. (SES-T)
Analysts: “Was removed due to strong share price performance moving the yield out of our criteria.”
The remainder of the list is: Alaris Equity Partners Income Trust , AltaGas Ltd. , Brookfield Renewable Partners LP , Capital Power Corp. , Chemtrade Logistics Income Fund , Canadian Imperial Bank of Commerce , Dexterra Group Inc. Doman Building Materials Group Ltd. , Dream Industrial REIT , Exchange Income Corp. Gibson Energy Inc. IGM Financial Inc. , Mullen Group Ltd. , RioCan REIT , TC Energy Corp. , Topaz Energy Corp. and Transcontinental Inc.
“The average yield of All-Star equities for 2024 is elevated at 5.9 per cent and payout easily funded with most having the capacity to grow dividends/distributions,” they said. “The average payout ratio of the portfolio is 62.9 per cent and the average payout measure (AFFO, FCF, etc.) yield is 10.5 per cent.
“With lower interest rates expected (market is expecting 75 bps of cuts in Canada by EOY), dividend paying stocks could come back in favour.”