Top dividend picks from Bay Street money managers

From struggle raging in Ukraine, to central banks launching salvos of price hikes in opposition to inflation, 2022 was a battlefield for traders the place certainty was briefly provide.

With rising consensus on some method of recession, simmering geopolitical tensions, and COVID-19 danger set to push into one other yr, 2023 stands out as the time so as to add dividend shares to your portfolio. However with a lot potential chaos on the desk, which corporations are greatest positioned to supply a gentle stream of earnings, and even develop their payouts?

Yahoo Finance Canada reached out to 4 Bay Road cash managers to search out out the place they’d make investments to ship market-beating returns this yr.

Financial institution of Montreal (BMO.TO)(BMO)

Canadian banks are a go-to for dividend-focused traders who discover the steadiness and scale of a Schedule 1 monetary establishment assist them sleep at night time.

Tim Johal, vice-president and portfolio supervisor of Mackenzie Investments’ Canadian Dividend Fund, sees the Financial institution of Montreal (BMO) outperforming its peer group of massive banks this yr.

He factors to robust income from BMO’s U.S. banking section, the place the financial institution intends to develop its footprint by means of a US$16.3 billion deal to purchase Financial institution of the West. The transaction is anticipated to shut within the first quarter of 2023.

On the identical time, Johal says traders have been “too pessimistic” in assessing BMO’s skill to climate a Canadian actual property correction.

“Whereas traders have considerations a couple of downturn within the Canadian housing market and potential losses within the financial institution’s residential mortgage portfolio, we consider these dangers stay manageable as a consequence of continued low unemployment, excessive ranges of dwelling fairness, even with the latest retreat in dwelling costs, and BMO’s historical past of robust danger administration,” he mentioned.

Annual dividend yield: 4.63%

Fund holding: Sure

Private holding: No

Calian Group (CGY.TO)

Ottawa-based Calian Group will not be a family identify, however the IT options and coaching firm is a inventory to look at, in keeping with Michael Simpson, portfolio supervisor at NCM Investments.

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Calian’s obscurity could also be as a result of complicated job of explaining the corporate’s work throughout an unlimited array of industries, from defence, to well being and training.

In its newest quarter, Calian says it booked file income, transferring the corporate nearer to its purpose of changing into a billion-dollar income generator. Additionally key for traders is the truth that the inventory was largely spared from the tech sector carnage that noticed shares of corporations like Canadian e-commerce large Shopify (SHOP.TO)(SHOP) plunge final yr and stay underneath strain.

“We anticipate additional dividend will increase. Calian has a powerful, sturdy backlog. They’re shifting to extra capital-light companies. So that ought to decrease capital expenditure necessities,” Simpson mentioned. “Lastly, Calian has a powerful and skilled administration crew.”

Annual dividend yield: 1.69%

Fund holding: Sure

Private holding: No

Sticking with the know-how sector, shares of Waterloo-based Open Textual content haven’t held up almost in addition to Calian’s inventory in 2022. Robert Spafford, vice-president and portfolio supervisor at Cidel Asset Administration, says the latest drop presents a “fantastic alternative” to personal the software program supplier.

In its newest quarter, Open Textual content says it achieved file income, whereas reserving a major one-time loss related to its planned acquisition of British software and technology company Micro Focus.

Spafford sees the deal including roughly 60 per cent to the corporate’s adjusted earnings earlier than curiosity, taxes, depreciation and amortization (EBITDA). The transaction is anticipated to shut within the first quarter of 2023. He feels traders should not bristle on the debt Open Textual content might be including to its stability sheet to fund the acquisition.

“The mixed entity will generate vital free money movement that might be used to quickly cut back the debt,” Spafford mentioned. “We don’t suppose that the acquisition will preclude Open Textual content from persevering with to lift the dividend. As tangible proof of its excessive free money movement margin and acquisition-driven enterprise mannequin, Open Textual content has grown its dividend on common 15 per cent yearly over the previous decade.”

Spafford additionally notes “vital” insider shopping for for the reason that firm introduced the Micro Focus deal.

Annual dividend yield: 3.26%

Fund holding: Sure

Private holding: Sure

Canadian Pacific Railway (CP.TO)(CP)

Like the massive banks, Canada’s railways are a basic selection for dividend-hungry traders. For Irene Fernando, vice-president and senior portfolio supervisor of North American equities at RBC World Asset Administration, CP Rail is the one to go together with.

She says robust operations and M&A upside make Calgary-based CP essentially the most attention-grabbing story in North America’s rail trade. The corporate is awaiting approval to amass Kansas Metropolis Southern in a deal that will develop its community into all three North American nations.

Fernando says she’s assured in administration’s skill to combine the railways, and navigate challenges if an financial slowdown weighs on delivery demand.

Annual dividend yield: 0.74%

Fund holding: Sure

Private holding: No

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Observe him on Twitter @jefflagerquist.

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