Ryan Bushell, president and portfolio manager, Newhaven Asset Management

FOCUS: Canadian dividend stocks

MARKET OUTLOOK:

Newhaven portfolios are now outperforming the S&P/TSX Composite Index on the year as the narrative surrounding power demand growth from cloud computing/AI and the reshoring of manufacturing in North America is finally gaining steam amongst generalist investors. Growth in power demand and the infrastructure needed to support that growth is something we have been discussing for a couple of years, so we were happy to add to positions on temporary weakness caused by the abrupt rise in long-term interest rates last fall.

We remain confident that this theme will play out over the next decade-plus, fuelling steady dividend growth and share-price appreciation from our holdings. At the same time, the broader market and economy seem vulnerable to a slowdown in consumer spending and stretched valuations for certain heavily-weighted sectors. Commodities continue to defy gravity which should provide support for the TSX relative to the S&P 500 Index as investors flock to hard assets following a cumulative devaluation of G7 currencies of more than 20 per cent in the past few years, which is not finished.

The setup for large swaths of the TSX relative to the S&P 500 looks similar to the early 2000s despite the ongoing weakness and productivity challenges in our country. Both political outcomes in the United States in November likely yield a similar result as it relates to trade policy and fiscal spending (inflation). As a result, we prefer to own companies with tangible infrastructure assets, alongside a few commodity producers, as the core of our portfolio holdings. This is complemented by select stable businesses that are resilient to challenges for the consumer.

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TOP PICKS:

Telus (T TSX)

The pain in telecom shares has gone too far in my opinion. Headwinds from interest rates, slowing immigration, competition, and a softer economy are reasonably reflected in the shares while tailwinds from data demand, ongoing population growth and a decline in capex intensity should support the stock from here on a long term basis. This is not a near term call, but tucking some Telus away with a near seven per cent dividend yield at a time where free cash flow is likely to inflect higher should look pretty attractive with a five year time horizon.

Savaria (SIS TSX)

We continue to like Savaria, which we first purchased in 2020, for their mix of home accessibility products and elevators to support an aging population that wants to stay in their homes. On a near term basis, the company has embarked on an ambitious restructuring program to increase margins and revenues. We recently toured their main Canadian manufacturing facility in Brampton and came away impressed at the level of commitment to improvement across the organization. Q1 margins came in well ahead of analyst expectations during a seasonally-weak quarter, so we are optimistic that momentum will build as the year goes on. Management also hinted at future dividend increases once the restructuring program is completed in 2025.

Brookfield Renewable Partners (BEP.UN TSX)

Brookfield Renewable Partners had a difficult last couple of years following changes in investor appetite driven by supply chain issues with, and performance of, renewable assets. As mentioned earlier, we did not run from these companies during the downturn as the need for all types of power generation was very clear to us and recently we were happy to see Brookfield Renewable sign a significant contract for 10.5 gigawatts of new renewable power over the second half of this decade. For context, Brookfield Renewable currently produces 33 gigawatts so this is a material contract for the company. We like to purchase the BEP.UN in non-taxable accounts to get the ~10 per cent discount on the shares, putting the yield above 5.1 per cent at present for our non-taxable accounts.