Hold ’em or fold ’em?

Stocks to hold and stocks to sell

The investing world has changed almost overnight. Some securities are holding up well during the COVID-19 crisis, but others that seemed rock-solid a few weeks ago are being battered.

Given these dramatically changed circumstances, we need to review our portfolios and get rid of positions that are likely to drag down our returns for months and even years to come. In the words of the Kenny Rogers song, “The Gambler,” we have to “know when to hold ’em, know when to fold ’em.”

With that in mind, here are my suggestions for some of the recommendations in my Income Investor newsletter. Keep in mind there are no guarantees that dividends will continue at current levels, but the stocks in our “Hold ’em” category should be reasonably safe. Prices are as of the close on April 24.

Hold ’em

BCE Inc. (TSX: BCE). Like the rest of the market, BCE plunged in March, but the stock has since rallied and was recently trading at $57.58. The company will likely see some revenue and profit loss as the COVID-19 recession deepens, but the dividend looks secure. As a result of a 5% hike effective with the March payment, investors are now receiving a dividend of $0.8325 quarterly ($3.33 annually) for a yield of 5.8%.

Fortis Inc. (TSX: FTS). Fortis is an electricity and natural gas utility based in St. John’s. It has over three million customers in Canada, the U.S., and the Caribbean. The shutdown of small businesses and manufacturing will affect demand this year, so I expect revenue and profits to decline. But the share price, which dropped to the $42 range in March, is back up to $54.75. The quarterly dividend of $0.4775 ($1.91 per year) yields 3.5%.

North West Company (TSX: NWC). NWC operates general stores, mainly across Northern Canada and Alaska. In some small communities, it is the only source of needed supplies. The company has been designated as an essential service. On March 30, it issued a statement to shareholders on how it is coping with COVID-19. On the financial side, North West has approximately $190 million of available capacity on existing loan facilities. “This capacity combined with an anticipated 38% reduction in capital investments from $104 million in 2019 to $65 million in 2020 and previously announced $17 million in annualized administrative cost savings, are expected to provide growth in operating cash flow in 2020,” the company said. The share price has recovered to $31.15 after falling to the $16 level in mid-March. The quarterly dividend is $0.33 per share ($1.32 per year) to yield 4.2%.

Brookfield Renewable Partners (TSX: BEP.UN). Renewable energy companies are holding up quite well, despite the market turmoil. The units traded recently at US$55.73, up 20% for the year to date. That’s just a hair below its record high of $57.69, reached in February, but that price looked inflated at the time. The units pay US$0.54 quarterly (US$2.17 a year) to yield 3.9%.

Fold ’em

Sienna Senior Living Inc. (TSX: SIA). The impact of COVID-19 has hit retirement residences and long-term care facilities especially hard. So far, Sienna has succeeded in avoiding outbreaks at its B.C. properties, but Ontario is a different story. As of April 19, the company reported that most infections at its residences in that province had been contained but that a serious situation had developed at its Altamont Care Community in Scarborough, where several residents and a personal support worker have died.

The share price has fallen to $10.22 from a high of over $20. The stock pays a quarterly dividend of $0.24 ($0.94 a year) to yield 9.2%. In March, the company issued a press release stating its “strong balance sheet, ample liquidity and healthy payout ratio are expected to continue to support the dividend payments to our shareholders.”

However, long-term care facilities will almost certainly face tougher regulations after the COVID crisis is over. A report released last week by the Canadian Centre for Policy Alternatives found that homes run on a for-profit basis tend to have lower staffing levels, more verified complaints, more transfers to hospitals, and higher rates for both ulcers and morbidity. Changes to the system are likely to increase costs and put pressure on the bottom line of these companies.

Extendicare (TSX: EXE). Extendicare is another national provider of retirement residences and long-term care facilities. According to Family Councils Ontario, as of April 24, seven of their homes in Ontario had reported cases of COVID-19 among residents or staff. The company is working with authorities to control the situation, but as we are seeing, long-term care residences are a breeding ground for the disease. The company has maintained its dividend thus far, but the share price has fallen to $5.64. At that level, the yield on the $0.04 monthly payment is 7.8%. That’s very attractive if it can be maintained, but this is not a business I want to be invested in at this time, for the reasons mentioned above.

Prairie Sky Royalty Ltd. (TSX: PSK). As if COVID-19 weren’t enough, the oil and gas sector has been hammered by low prices due to shrinking demand and overproduction. Many companies have slashed their dividend, including Prairie Sky, which is now paying $0.06 per quarter ($0.24 a year), to yield 2.9%. That’s a two-thirds cut from $0.065 per month previously. It’s the same story across the entire oil and gas sector.

It’s going to be a long time before this sector recovers, and we may never again see the lofty dividends of years past. As with the nursing homes business, it’s time to fold this position.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.