Editor's note: Welcome to the latest installment in our new series, The Stockpickers. Each week, we will talk to top money managers from Canada and abroad about their funds and the stocks that are driving their performance. The Stockpickers will run every Monday, Wednesday and Friday. We hope you enjoy our new feature.
WINNIPEG (GlobeinvestorGOLD) -- There's more than a few market speculators and hedge fund investors envying the stability and consistency of fund manager Bill Shaw's Canadian dividend fund these days.
His Mavrix Income Fund was the top Canadian dividend portfolio in 2001 out of a field of 81. For the 12 months ended March 31, 2002, he maintained the top spot with a return of 20.2 per cent compared with an average 8.6 per cent return for the average domestic dividend fund and an even slimmer 4.9 per cent gain by the TSE 300 Total Return Index. A value manager, he seeks to generate healthy income and to produce some growth in underlying stocks. The $21-million portfolio holds both high payout assets, such as royalty trust, as well as common stocks with moderate dividends but more chance to grow payouts over time. He seeks companies with little or no debt on their balance sheets, a strong return on equity in a range of 12 to 15 per cent per year at a minimum, and genuine earnings that can easily support dividends.
“Dividend-paying stocks are relatively easy to value,” Mr. Shaw said. “Companies that pay dividends have real earnings with cash behind the number. Valuations are meaningful, so for the investor who wants stability and a dividend tax credit for taxable accounts, a fund that blends income trusts with high dividend common stocks makes sense.”
Among Mr. Shaw's favourite picks is Davis and Henderson Income Fund, a Toronto-based income trust that holds the contracts, plant and equipment of Canada’s largest cheque printer. The fund bought the trust at an average cost of $10.33 per unit, and it recently changed hands at $10.40. Along with a yield of 12.8 per cent, the fund has some risks. People could stop using checks, indeed, banks and many companies would like that, Mr. Shaw said. Debit cards are cutting into the market, but the fund remains a good play since every new business has to order cheques, he noted. The units could rise to $12 but even at that price the cash yield of $1.30 would amount to 10.8 per cent.
The Northwest Company Fund is also in the portfolio. A Toronto-based income trust that owns stores in northern Canada, the units were purchased at an average cost of $13.77 and have been trading at about $19.15 in recent days. The underlying company is a monopoly vendor in each community in which it operates. Built on the retail outlets of Hudson Bay Co. when the department store wanted to concentrate on southern urban makers, the remote stores were packaged as a trust that currently yield $1.50, or 7.8 per cent. Within the next 12 months, the units could rise to $22., Mr. Shaw said.
Financial services company Fairfax Financial Holdings Ltd. also figures prominently in the fund. The company's stock price currently trades at $185 after soaring as high as $600 in 1998 and falling as low as $160 in January, 2002. The stock was purchased when the shares were at $167, or 78 per cent of book value. Premiums are rising rapidly, market capacity is down and reinsurance treaties are being written to exclude acts of war and terrorism. In a year, Fairfax could be earning $24 per share, he said. Using a very conservative multiple of 10, that implies a share price of $240, a potential profit of 4 per cent on the fund’s acquisition cost. Fairfax is a deep value way to generate that growth, he said.
Andrew Allentuck writes about investments for The Globe and Mail, and reviews books on finance for globefund.com and globeinvestor.com. He is also the author of several books. |
