Douglas Kee, managing director and chief investment officer at Leon Frazer & Associates

Focus: Canadian dividend-paying stocks
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MARKET OUTLOOK
Recent economic data coming out of major economies such as the United States, Europe, United Kingdom, Japan and China all indicate improving global growth for 2017. For the U.S. we are forecasting growth in the two-to-four-per-cent area with potential favourable tax changes and a pick-up in energy-sector spending being major catalysts. The U.S. is embarking on a stimulative fiscal cycle with the economy near full employment. We expect two rate hikes this year but more may be needed if inflation picks up. We would expect that U.S. 10-year treasuries will trade through three per cent sometime this year. For Canada, growth will continue to be muted in the zero-to-two-per-cent area given the slow recovery in Alberta and a stretched consumer balance sheet.

Our trading range for the S&P TSX Composite index is 13,500 to 16,500. With the Trump election victory providing a more inflationary backdrop, the range of outcomes has dispersed, reflected by a widening of our traditional range from 2,000 to 3,000 index points. Ultimately, we see the backdrop setting up favourably for financials and energy. Our portfolios have likely reached a maximum in economic sensitivity and we will look to reposition portfolios more defensively over the next year or so. We remain committed to companies that provide a current yield and the potential for increased dividends in the future.

TOP PICKS

NORTHLAND POWER ($23.40) (NPI.TO)
Northland owns and develops wind, natural gas, solar and hydro power generation assets. NPI currently has a total operating capacity of 1,394 MW. The company has two offshore wind projects: Gemini (600 MW) and Nordsee One (332 MW), which will both be fully ramped up by the end of 2017. By 2018, total corporate EBITDA will rise by 60 per cent. The shares currently yield 4.6 per cent and we would expect significant dividend increases over the next two years. Northland also announced a strategic review in July 2016. A decision on the go-forward strategy should be announced over the next few months.

TORONTO-DOMINION BANK ($67.00) (TD.TO)
We are at our maximum allowable weight in Canadian banks. Being a well-regulated oligopoly where competition is healthy, the banks have been able to return value to shareholders through growing dividend payouts and share buybacks. We currently like the prospects for TD given its greater exposure to U.S. retail banking, which should benefit from better economic growth, stronger loan growth and improving margins as interest rates rise. We would expect dividend growth of five per cent to 10 per cent over the next couple of years.

ROGERS COMMUNICATIONS ($52.35) (RCIb.TO)
The telecom sector has been under pressure given the regulatory environment, rising interest rates and perceived low subscriber growth. Rogers has underperformed its peers and is off 13 per cent from its high. RCI currently yields 3.7 per cent but has suffered from self-inflicted problems of late including the Shomi cancellation, the CEO turnover and recently the announcement that it will discontinue its IPTV product and partnership with Comcast. Despite the setbacks, Rogers remains a free cash flow machine, which will likely increase its dividend in 2017 and potentially buyback shares.
 

PAST PICKS: OCTOBER 8, 2015

ENBRIDGE (ENB.TO)

• Then: $55.85 
• Now: $57.43
• Return: +2.82%
• TR: +8.20%

CENOVUS ENERGY (CVE.TO)

• Then: $22.22
• Now: $20.27
• Return: -8.77%
• TR: -6.95%

ROYAL BANK OF CANADA (RY.TO)

• Then: $74.40
• Now: $92.82
• Return: +24.75%
• TR: +31.45%

TOTAL RETURN AVERAGE: +10.90%