Selloff of high-dividend stocks is overdone, Manulife manager says

For Alan Wicks, pipelines like hard-hit Enbridge are worth a look.

Michael Ryval 19 April, 2018 | 5:00PM
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It has been a challenging environment as the spike in interest rates has hit bonds and many interest-sensitive stocks, says Alan Wicks, senior managing director at Toronto-based Manulife Asset Management Ltd. and lead portfolio manager of the $8.3-billion Manulife Monthly High Income. The question he is trying to address comes down to: "In a rising interest-rate environment, how do you deal with trying to provide yield to your unitholders, without taking on too much capital risk?"

But conditions have slowly begun to improve and Wicks and co-manager Duncan Anderson, senior managing director, have started to move back into the space dominated by consumer staples, consumer discretionary and telecommunications stocks. This reverses a move begun almost two years ago, when they slowly reduced the exposure to so-called high-dividend companies which, as value investors, they had deemed too expensive.

"We started to rotate out of names such as  Enbridge Inc. (ENB),  Fortis Inc. (FTS) and  Loblaw Companies Ltd. (L), a lot of the traditional high-payout, defensive equities," says Wicks, a 30-year industry veteran who was part of the team managing the precursor fund, Elliott & Page Monthly High Income, from its inception in September 1997. "In May 2016, the dividend yield was about the same as that of the S&P/TSX Composite Index. While the index's dividend yield went up slightly, ours went down. At that point, we began moving to names that were cheaper on a price-to-earnings basis, or other metrics. But their dividend yields were a little lower (than the index)."

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
CI Financial Corp26.96 CAD0.60Rating
Enbridge Inc50.66 CAD-0.33Rating
Fortis Inc57.49 CAD-0.91Rating
L Brands Inc66.34 USD-0.26Rating
Loblaw Companies Ltd85.64 CAD-2.05Rating

About Author

Michael Ryval

Michael Ryval  Michael Ryval, a regular contributor to Morningstar, is a Toronto-based freelance writer who specializes in business and investing.

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