First and foremost, Juliette John wants to own companies that will grow over the long term. After that? Businesses need to pay up. The Calgary-based founder of Iris Asset Management is attracted to operations that pay a “decent amount” of income to shareholders over time. Stocks in the Russell Canadian Dividend Pool, which she manages, need to generate steady cash flows and have a strong focus on cash management so that those dividends won’t get cut in tough times.
That said, she’s not looking for the highest payers. She also wants to see a business reinvest in its asset base. “We want a healthy balance between dividends and reinvestment,” she says, “but it should still generate a yield advantage relative to the benchmark.”
Royal Bank of Canada (TSX: RY)
1-yr. total return: 11.4%
Banks are generally good businesses, says John, but to her, the Royal’s still the king. RBC had a strong first quarter; net income climbed 17% year-over-year. But its price-to-earnings ratio, usually a full point higher than its peer group’s, is now trading in line with its cohorts. “That premium has disappeared, and that presents an opportunity,” she says. The lower-than-usual multiple is a result of weak Q2 expectations, she says, but she still thinks RBC has potential. Its capital markets business is one of the strongest of the bigbanks. She also applauds its $5.4-billion deal for City National Bank, which has branches in four U.S. states.
Brookfield Infrastructure Partners (TSX: BIP.UN)
1-yr. total return: 28.5%
Brookfield Infrastructure owns toll roads, utilities, communication towers and other long-life assets scattered around the world that generate a steady return. About 90% of its cash flows come from regulated or contracted businesses, says John, which means revenues are fairly predictable. That allows the company to pay an attractive dividend, and management has said it will raise its payout by 5% to 9% a year. Low interest rates don’t hurt, either. “If they can borrow at, say, 4% and generate cash flows from the business for a return on investment of 12%, then they’re doing quite well,” she says.
Crescent Point Energy Corp. (TSX: CPG)
1-yr. total return: -31.5%
Energy stockholders have a lot to be nervous about these days, but John’s not concerned about Crescent Point. For one, most of its production is in Saskatchewan, so anticipated royalty changes in Alberta won’t have a big impact. The company also has ample reserves that should keep it busy for up to 15 years. Indeed, it continues to grow that base while assets are going cheap—the firm closed or announced four acquisitions in 2014. Its high yield may worry some investors. While John can’t say for certain that it won’t get cut, she points out that the company has never slashed its dividend in a down cycle.