Last year, we said we were moderately bullish for the Canadian market for 2014. After beating the S&P 500 for 10 months in a row and reaching almost 15% growth, the TSX is now back to a small +1.89% as of December 11th 2014. Who’s guilty of this huge drop? The answer is as simple as “oil prices”.
While we expected price stabilization in 2014 for the price of oil, we were right until OPEC decided to keep their market share away from both Canadians and Americans by increasing their production enough to push the barrel under $60. This situation will unfortunately last a good part of 2015 and will hurt the Canadian economy globally. If you hold oil related stocks, you will have to be patient.
The other important Canadian sector is the financials. Banks have kept their lead ahead of the TSX throughout the year but slowed down in December posting disappointing results. The housing bubble is still hanging overhead and the fact the economy should not be too great in Western Canada will probably push the bubble to burst. This will definitely hurt banks over 2015. However, while I personally expected the housing bubble burst since 2012, it seems that the market is smoothly landing on a non-growth plateau and is ar a stand still. I like this scenario but I doubt it will hold steady.
For the good news, the Canadian Loonie kept losing steam compared to the US dollar and this situation will continue in 2015. This will help manufacturers from Ontario and Quebec to perform better. However, the shift in the economy is not automatic and we will have to wait a few more months before we actually feel the growing appetite of US consumers for Canadians products.
I don’t mean to say “I told you” but we mentioned it would be hard to reach higher than a 5% return with the Canadian market in our 2014 book and we will pretty much finish the year with a 5% return including dividend.
For the year to come, we expect the Canadian market to continue its slowdown. As long as the world interest for oil and other resources will remain low, Canada won’t be able to establish itself in a leading position through the stock market. It doesn’t mean there aren’t good opportunities; I think it’s the opposite. The current turmoil will enable awesome picks to outperform over the next year to come. Once again, we are moderately bullish for the Canadian market. We will end 2015 in positive territory, but the US market will do better.
As I do it each year, I’ve picked 10 Canadian dividend stocks to beat the market in 2015. My 2015 selection includes companies selling products directly to American consumers in order to benefit from the drop in oil price leading to a bigger family budget. Once again, I am bullish for 2015, but which dividend stocks will do better? Using my 7 dividend investing principles, I’ve made my list of the best dividend stocks for 2015 and I’m sharing 3 of them today.
Which Canadian Dividend Stocks will Outperform the Market?
COMPANY DESCRIPTION:
Ag Growth International Inc is a manufacturer of portable and stationary grain handling, storage and conditioning equipment. It offers augers, conveyor belts, storage bins, handling accessories and aeration equipment. They operate across the planet showing 53% of the sales in US and 26% internationally (leaving only 21% in Canadian sales).
STRENGTHS:
If there is a company that could benefit from lower cost of transportation combined with a weak Canadian dollar, it is probably AFN. Since 53% of their sales are done in the US, it wouldn’t surprising to see this number will increase in 2015 considering the strong US economy. The company shows a good ability to grow by both internally and through acquisition. In 2014, they acquired Saskatchewan based REM GrainVac product line. Their five years sales growth is showing double digits and the dividend yield is not bad either.
WEAKNESSES:
Since there are lots of hopes put on this company from the Canadian market, the P/E ratio is high at 31 while it has traded generally under 25 over the past 5 years. The payout ratio is definitely above our standard as well at 94%. If the company fails to bring in strong numbers, this is a good example of a company that could drop rapidly. However, we don’t think it will happen.
COMPANY METRICS:
COMPANY DESCRIPTION:
Intact Financial Corporation provides property and casualty insurance in British Columbia, Alberta, Ontario, Quebec and Nova Scotia. It distributes insurance under the Intact Insurance brand through a network of brokers and its subsidiary, BrokerLink.
STRENGTHS:
IFC is now working on a stronger distribution platform and plans to expand in Brazil to diversify its business outside Canada. We expect IFC to keeps its growth rate in the double digits for both revenues and EPS. This should give more room for additional dividend increases. The demand remains strong in Canada for insurance products and IFC has a well established business model. Since Mother Nature may not be as rough as it was last year with Alberta’s flood, we should see bigger profits in 2015 for IFC.
WEAKNESSES:
We don’t see any major clouds over the head of IFC at the moment. The market for insurance is robust and IFC continuously posts stronger results than its peers. Only a big natural disaster could hurt IFC in 2015.
COMPANY METRICS:
COMPANY DESCRIPTION:
National Bank is the 6th biggest bank in Canada. It provides numerous financial services to individual, commercial and institutional clients. Their services range from regular banking, investment, insurance, brokerage, mortgages, loans, etc. NA is considered more as a regional bank with a leadership position in the province of Quebec.
STRENGTHS:
National Bank has been able to produce and report record profits for 2014 for two major reasons. The number one is due to its trading market sector. They generate almost 40% of National Bank’s revenues and this segment is highly profitable. The second reason is linked to their wealth management platform. Their private wealth (1859) and brokerage firm (National Bank Financial) continued expansion outside Quebec with great success. The bank is less at risk than its peers in regards to the mortgage market as about 70% of their business now comes from the other two segments mentioned above. This is a small bank with strong potential. It currently trades under 11 P/E paying over 4% dividend yield.
WEAKNESSES:
Since a huge part of its business depends on the market, National Bank is also at risk of showing a drop in revenues at any moment. Since it’s the smallest of the big banks, be prepared to see additional volatility with the stock price compared to the “big five”.
COMPANY METRICS:
Want More? I have 16 other Dividend Stock Picks in my Book!
I’ve compiled a list of 20 dividend stocks to do well in the market for 2015. You just read about four of them, but there are still lots to discover in the book! The book includes the 20 dividend stock analysis plus 10 Canadian dividend stocks. That’s 40 pages worth of information for only $4.99.
This year, I offer both versions: PDF or Kindle.
Click on the following button to buy the PDF version
Click here to buy the Kindle version (Amazon link)
Disclaimer: I hold NA.TO in my personal portfolio and all stocks mentioned in this article are part of our DSR portfolios.
