Well, we finally got the news we’d been expecting: Canada’s economy contracted for two consecutive quarters. According to Statistics Canada, gross domestic product (GDP) growth declined by 0.5% during the second quarter, following a revised drop of 0.8% in the first quarter.

But while most journalists are content to call this a recession, “technical” or otherwise, many economists note that two consecutive quarters of falling GDP shouldn’t be considered a recession unless they’re accompanied by significant declines in employment, as well as deterioration in other key areas.

In fact, the opposite has occurred: Canada’s economy has added nearly 318,000 full-time jobs over the past year, with more than half of those jobs created year to date, a period during which the country has borne the full brunt of the oil shock.

Equally important, full-time jobs are now driving the employment market. That’s a welcome contrast to the period from mid-2013 through August 2014, during which full-time job creation essentially stagnated, while more and more new jobs were only part-time.

The trend has thankfully reversed, and that augurs well for the economy: Full-time jobs tend to be higher quality than part-time jobs, owing to better pay, greater benefits and lower turnover.

The total number of hours worked, an important indicator of future labor demand, also underwent a period of stagnation for nearly two years. But over the past 12 months, the total number of hours worked has risen by a respectable 2.2%.

Similarly wage growth, which underwent a marked deceleration following a post-Global Financial Crisis peak in mid-2012, is finally strengthening again, up 3.4% over the trailing year.

Somehow, despite crude oil’s collapse, Canada’s job market is rapidly improving.

So which sectors are showing the strongest employment growth? In terms of the numbers of new jobs, the healthcare and educational services industries account for 40.5% and 27.4% of new jobs, respectively.

On a percentage basis, the utilities sector saw the strongest increase in employment, up 7.4% year over year, followed by transportation and warehousing, up 4.3% over the past year.

We like to keep tabs on these data since they can help uncover new investment themes or underscore the thesis behind existing holdings.

Among our favorite utilities, Fortis Inc. (TSX: FTS, OTC: FRTSF) enjoys the strongest analyst sentiment on Bay Street, at nine “buys,” three “holds,” and one “sell.”

The mid-cap holding company owns regulated utilities across Canada, the U.S. and the Caribbean.

Fortis also has other diverse operations, ranging from unregulated utilities to commercial real estate. But like many of its peers in the utilities sector, the company is in the process of divesting most of these non-core assets to concentrate on its regulated holdings.

And even prior to these divestitures, the firm’s regulated electric and gas utilities accounted for the vast majority of revenue, at around 95% in 2014.

Fortis has also made substantial inroads toward diversifying revenue, mainly through last year’s $4.3 billion acquisition of Tucson, Ariz.-based regulated utility UNS Energy Corp. That deal helped boost Fortis’ U.S. revenue from 18% to nearly 45%.

While the company focuses on organic growth, it may be quiet on the acquisition front for a while, at least as far as big, transformative deals go. But analysts expect Fortis will look to expand its presence in the U.S. in the years ahead.

For full-year 2015, analysts forecast adjusted earnings per share will climb 14%, to CAD2.06, on a 26% jump in revenue, to CAD6.8 billion.

Fortis has grown its dividend by 4% annually over the past five years, and analysts forecast future dividend growth of 5% to 6% annually through 2017.

With an annualized payout of CAD1.36 per share, the stock currently yields 3.9%. Fortis is a buy below USD30/CAD39.

The Dividend Champions: Portfolio Update

By Deon Vernooy

With the exceptional volatility of the past few weeks, even longtime buy-and-hold investors may be second-guessing their strategy. Though it can be a difficult exercise to review one’s portfolio holdings amid such circumstances, we continue to closely monitor our companies’ fundamentals for any signs of deterioration.

Toronto-Dominion Bank (TSX: TD, NYSE: TD), one of our Dividend Champions, reported a 4.4% year-over-year increase in earnings per share for the fiscal third-quarter (ended July 31). The dividend was boosted by 9%.

The Canadian retail banking business, which accounts for almost two-thirds of profits, grew net income 8% year over year. This solid result was underpinned by Canadian loan and deposit growth, higher wealth management and insurance profits, and fee income.

The U.S. retail business was slightly disappointing and delivered no growth in U.S. dollar terms, though the weaker Canadian dollar supported a 16% jump in translated profits. Reasonable loan and deposit growth was offset by lower margins in a competitive environment.

Expenses were well contained, but the cost-to-revenue ratio is still considerably higher than in the Canadian retail business, indicating room for eventual improvement.

The bank’s overall loan book expanded by 12% compared to last year, while provisions for credit losses expressed as a percentage of average loans increased slightly from the previous quarter. TD’s exposure to the oil-and-gas sector remains at a very low 1% of the total loan book, with no immediate signs of a deterioration in credit quality.

The forward 2015 price-to-earnings ratio, based on consensus earnings growth of 8%, is now 11.3 times, while the stock currently yields 3.9%.

In my view, this is the best retail bank in Canada, with considerable upside potential from its U.S. retail operation. The stock deserves a premium rating compared to its peers and can be bought up to USD43/CAD56.

In the August issue of Canadian Edge, we added InnVest Real Estate Investment Trust (TSX: INN-U, OTC: IVRV.F) to the Dividend Champions Portfolio due to its tempting turnaround story.

The most recent quarterly results confirmed our expectation that better days are ahead for this owner and operator of one of the largest hotel portfolios in Canada. Funds from operations per unit increased by 18% compared to a year ago, supported by higher levels of occupancy, higher average daily rates, and lower operating expenses.

Highlights from the quarter included the 24% increase in the gross operating profit of the 58 renovated Comfort Inn hotels and strong performances recorded from hotels in the Quebec and Ontario regions. Operating results from the hotels in Calgary were less pleasing, as lower energy prices dampened business, and clients avoided two full-service hotels under renovation.

Management continued to enhance the quality of its hotel portfolio with the sale of two less-desirable properties in the first half of the year, the acquisition of Hotel Saskatchewan in Regina and a 33% interest in the Courtyard by Marriott hotel in downtown Toronto. Further renovations are also underway or planned for the second half of 2015.

Overall leverage in the portfolio was further reduced in the first half of 2015, with debt-to-gross asset value now at 60%, an improvement of 6 percentage points from a year ago.

Management also succeeded in extending the weighted average term of debt and lowering the cost of debt compared to year-end 2014. Further reductions in the cost of debt are expected as maturing debt is renegotiated in the second half of 2015.

The current monthly dividend amounts to CAD0.40 per share annualized, for an attractive yield of 7.6%. This represents a 12-month rolling payout ratio of 81% of adjusted funds from operations, which is the lowest payout ratio achieved in six years. Management believes the dividend is sustainable.

Prospects for the Canadian tourism industry continue to improve, as evidenced by the 6.5% increase in U.S. visitors to Canada in the first five months of 2015. Formal estimates now indicate that the Canadian hospitality industry will enjoy one of its best years in quite some time thanks to the sharply lower exchange rate.

InnVest is an attractive target for new money and can be bought below USD5/CAD6.

Bank of Nova Scotia (TSX: BNS, NYSE: BNS) is on our watch list as a potential addition to the Dividend Champions Portfolio. The bank delivered a 4% increase in earnings per share for its fiscal third quarter (ended July 31). The dividend was increased by 6.1% compared to a year ago.

BNS performed well during the quarter, with net interest income up by 6% and fee income by 11%. The Canadian and international operations grew earnings 9% and 11%, respectively. The only weak spot was the capital markets business, where profits declined by 11% as the volatile investment banking division recorded a 44% drop in profits.

Expenses were well controlled, with a 6% increase, while the provisions for credit losses were a little higher than a year ago. The bank has a $15.8 billion loan book (3.4% of total loans) extended to the oil-and-gas sector, but reported no evidence of a decline in credit quality.

The stock is trading at an attractive 10.2 times earnings, and currently yields 4.6%. However, we prefer Toronto-Dominion and Royal Bank of Canada, which may have slightly higher valuations, but also boast stronger franchises and lower risk.