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The year is half over, and it’s been a rough ride for investors. Central banks have continued to raise rates in the fight against inflation, the yield curve has been inverted for months, and recession fears abound. Stocks staggered in March and then turned around. As I write, the S&P 500 Composite Index was ahead 13.25% year-to-date, mainly on the strength of technology stocks. The Dow Jones Industria Average has posted a modest gain of 1.75%, while the S&P/TSX Composite Index is almost flat for the year.
Amidst all this, there have been some surprises among stocks on my newsletter recommended lists. Here are three of them.
Algonquin Power & Utilities Corp. (TSX: AQN). Algonquin had been a favourite with income-oriented investors for several years, thanks to its regular dividend increases and seemingly dependable cash flow. That all changed last November, when the company released third-quarter results that shocked the market. Citing “challenging macroeconomic conditions,” the company announced a quarterly loss of $195.2 million, slashed its earnings forecast for the year, and cut its dividend.
Investors were aghast, and analysts raised questions about the cost impact of Algonquin’s planned purchase of Kentucky Power. The share price, which was over $21 at the start of 2021, fell all the way to $8.70 in early December 2022. No one wanted anything to do with it.
Surprise! As of the close on June 24, the stock was showing a gain of 20.29% so far this year. It’s still a long way from its all-time high, but investors have shown a willingness to venture back in. The cancellation of the Kentucky Power purchase helped restore some confidence, as it meant Algonquin wasn’t forced to take on more debt during a time of rising rates.
First-quarter results showed a 6% increase in revenue over the same period last year. Net earnings attributable to shareholders were up 197%, to $270.1 million ($0.39 a share). The company has also announced a review of its renewable energy group, which it says the market is undervaluing. It expects to have results in late summer.
Boardwalk REIT (TSX: BEI.UN). It hasn’t been a good year for REITs – it rarely is when interest rates are rising. To June 23, the S&P/TSX Capped REIT index was showing a loss of 6.75% for 2023. But not all REITs have suffered.
Calgary-based Boardwalk REIT has bucked the trend, with a year-to-date gain of 20.33%. The units have gained about $10 since the end of December while most of the sector has been languishing.
The REIT owns and operates more than 200 multi-family, residential properties with over 33,000 residential units totaling over 29 million net rentable square feet. The company’s portfolio is located in Alberta, Quebec, Saskatchewan, and Ontario.
The share price has been fuelled by a series of positive announcements from the trust. In April, Boardwalk issued an operational update which showed strong same property revenue growth and the highest occupancy rate since 2013, at 98.4%.
A month later, the REIT released first-quarter results that were surprisingly strong. Rental revenue was $130.5 million, up 10.4% from the same period a year ago. Funds from operations (FFO), a key measure of a REIT’s financial performance, was $39.6 million ($0.79 a unit), up from $34.5 million ($0.68 a unit) in the same quarter of 2022. On a per-unit basis, that was a gain of 16.2%.
The trust reported a profit of $221.4 million in the quarter, more than double the year-ago number.
“Higher interest rates and expense inflation continue to provide a challenge for community providers so far in 2023,” said CEO Sam Kolias. “However, rental housing fundamentals remain strong in our core markets, and we are confident that our team’s resident focused approach, commitment to innovation, and peak performance culture will deliver strong organic growth in the quarters and years to come.”
Boardwalk increased its FFO guidance for the year to a range of $3.30 to $3.46 per share.
EQB Inc. (TSX: EQB). Banks are another sector that has fared poorly this year. The collapse of several regional U.S. banks made investors skittish, and concerns about a recession and loan losses have added to the angst. Even the Big Six Canadian banks, which are as sound as any in the world, have suffered. Royal Bank, the largest, is down 3.91% year-to-date, while TD Bank has lost 11.03%. The S&P/TSX Capped Financials Index has slipped 2.62% so far this year.
But one upstart bank is thriving. That’s EQB Inc., formerly known as Equitable Group. Its shares are up 16.34% since the first of the year. The company is riding on the success of its online EQ Bank, which Forbes recently named as Canada’s best bank for the third year in a row.
In early May, the company reported record quarterly earnings for the first three months of 2023. Adjusted net income was $101.7 million ($2.62 per diluted share). Return on equity was 16.5%, well ahead of the 15%+ guidance.
Customer growth in the quarter was 26% year-over-year to 336,457. EQB has $8.1 billion in deposits, up 12% from a year ago.
The company increased its quarterly dividend by 6%, to $0.37 a share ($1.48 annualized) effective with the June 30 payment. It was the third time in the past year the dividend was increased. It’s now 28% higher than at this point in 2022.
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. To take advantage of a 50% saving on a trial subscription and receive the special report “The Tumultuous Twenties,” go to https://bit.ly/bwGP20s.
Follow Gordon Pape on Twitter at https://twitter.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2023 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. 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.
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