Editor’s Note: Please see our analysis of the latest news from our Dividend Champions in the Portfolio Update section following the article below.

Canada may be down, but it’s far from out. And this week, there were two big numbers that suggest the country’s economy is gearing up for a strong rebound during the first half of this year.

First, we finally learned how the country’s economy performed during the fourth quarter. And it was quite a relief.

Although economists expected flat growth for the final quarter of 2015, Statistics Canada (StatCan) reported that gross domestic product (GDP) grew by 0.8% annualized. That may be a far cry from the 2.5% growth needed for the economy to be firing on all cylinders, but it blows away the consensus forecast of 0.0%–and it’s within shouting distance of U.S. fourth-quarter GDP growth, at 1.0%.

The fourth quarter’s better-than-expected growth also gives the economy a strong handoff to the first quarter, especially given the solid numbers posted in November and December.

Strong handoffs are important, as they’ve been big factors in past rebounds.

With the goods-producing sector still working through the commodities crash, it’s been up to the service sector to prop up the economy. Among the biggest contributors to growth were real estate, financials, and healthcare.

One big concern remains the decline in business investment. After all, you can’t really kick off a virtuous cycle of economic growth without it. On that score, business gross fixed capital formation has now fallen for four consecutive quarters, down nearly 7% from its high during the final quarter of 2014.

Prior to crude oil’s collapse, Canada’s energy sector accounted for roughly one-third of business investment, so the decline in the overall number is clearly a consequence of oil and gas producers’ aggressive belt-tightening.

Although Canada’s economic growth is expected to accelerate incrementally over each of the next five quarters, it likely won’t be at full capacity again until sometime during the second half of 2017.

In the meantime, the Canadian government is working out the final details of a budget that’s expected to be released later this month. And spending is expected to include some of the stimulus that Prime Minister Justin Trudeau promised during his election campaign.

With the country having already racked up a deficit of C$18.4 billion, Trudeau has ruled out any big-ticket surprises. But he acknowledged that there’s a limit to what monetary policy can do, and that it’s up to fiscal policy to pick up the slack.

Exports Hit an All-Time High

The other big piece of data this week is the news that Canadian exports hit a new all-time high in January, just shy of C$46 billion.

Exports had declined sharply as crude’s crash accelerated, but it looks like the lower exchange rate finally gave exports a much-needed boost, particularly when it comes to trade with the U.S.

The U.S. is Canada’s largest trading partner, absorbing about three-quarters of the country’s exports. And a falling loonie makes Canadian goods cheaper and, therefore, more competitive in the U.S. In January, exports to the U.S. climbed 2.6%, to C$34.9 billion, which is just slightly below the all-time high from last July.

Although the total value of energy sector exports fell by 28.5% year over year, other industries have more than compensated.

Canada’s automakers have been the biggest beneficiary of cross-border trade, with exports of motor vehicles and parts up 39.0% year over year, to C$9.1 billion. The gain in this category over that period has more than offset the decline in energy exports.

And exports of consumer goods jumped 40.8%, to C$7.3 billion, with particular strength from jewelry and pharmaceuticals.

Meanwhile, the rally in energy prices has helped lift the Canadian dollar off of its mid-January low. The loonie currently trades at US$0.75, up sharply from US$0.686 nearly seven weeks ago. However, this sudden strength could pinch exports in the months ahead.

But with an accommodative central bank and an infusion of stimulus spending, the Canadian economy is poised to accelerate. And given the recent action on the S&P/TSX Composite Index–the benchmark is up 12% from its year-to-date low–investors clearly expect an improving economy will boost stocks as well.

The Dividend Champions: Portfolio Update

By Deon Vernooy

Aimia Inc. (TSX: AIM, OTC: GAPFF), the loyalty card operator, announced fourth-quarter results and a 2016 outlook that soothed some investor nerves, as evidenced by the nearly 10% jump in the share price in the days following the announcement.

On the positive side, the company reported an increase in adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) of 27% for the quarter and 8% for the full year. This was mainly a result of the Canadian Aeroplan operation’s improved performance and a global cost-reduction drive.

The dividend was increased by 6% compared to the prior year, while the average share count was reduced by 12% thanks to an aggressive share-repurchase program.

More positive news came from the outlook provided by management for 2016: Adjusted EBITDA and free cash flow are expected to remain unchanged, while investors could see a solid increase in free cash flow per share due to the lower share count.

Less positive from our perspective was the income statement recorded as per the accounting rules. On that basis, Aimia posted an operating loss and a small net profit for the full year. While the net loss was mainly the result of heavy depreciation and amortization charges, we still find the outcome disappointing. Cash flow from operations also declined by 20%, while free cash flow declined by 30%.

Although management paints a fairly favorable picture for 2016, we are becoming increasingly concerned about the fact that the company operates in a highly competitive field with large customers who are in control of their client base and in a position to dictate contract terms.

Despite the stock’s attractive yield of 9.0% with little risk of a dividend cut in the near term, we’ve decided to sell Aimia from the Dividend Champions Portfolio. Sell Aimia.

Despite muted expectations, Toronto Dominion Bank (TSX: TD, NYSE: TD) delivered a solid 5% increase in earnings per share for the first quarter of the 2016 financial year. For good measure, the dividend was increased by 8%, for a payout ratio of 44%.

The Canadian Retail division increased profits by 4% on solid loan and deposit growth, despite a 20% increase in provisions for credit losses and lower net interest margins. Costs were tightly managed, with no increase over the past year, while the staff count was reduced by 3%.

The U.S. Retail division increased U.S. dollar profits by 3%, which translated into a 20% increase in Canadian dollar terms. Key numbers were the 15% increase in loans and a 9% increase in deposits, while provisions for credit losses jumped 70% due to the consumer and mortgage loan categories.

Costs were equally well controlled in the U.S. division, resulting in a much-improved efficiency ratio (non-interest expenses compared to revenue–lower is better) of 58.6%. Although this is still higher than the Canadian ratio, the movement is in the right direction.

The much smaller Wholesale Banking division reported a 16% drop in profits, as equity-trading results disappointed.

At the overall bank level, provisions for credit losses surged 76%, with the bulk of the increase arising from the U.S. portfolio. The bank still has a very limited credit exposure to oil and gas corporates (less than 1% of the total loan portfolio), while non-real estate and consumer exposure to the energy-dominated provinces amount to another 2% of the portfolio. This seems to be a well-controlled exposure.

The bigger risk is the much larger residential mortgage book, though the bank points out that 55% of loans are insured and that the loan-to-value ratio on the uninsured component is only 68%.

Although Canadian banks have muted prospects for growth this year, we believe that TD Bank is well positioned with its growing U.S. franchise and relatively low exposure to the oil and gas sector. With a yield of 3.9% and a forward price-to-earnings ratio of 11.1, the stock’s modest growth prospects and risks are well discounted, and we’re comfortable holding it in the Dividend Champions Portfolio.

Fortis Inc.’s (TSX: FTS, OTC: FRTSF) fourth-quarter and full-year results made for altogether pleasant reading. Adjusted earnings per share increased by 13% and 21% for the quarter and year, respectively. And the full-year dividend was raised by 9.4%.

The weaker Canadian dollar boosted results for the company’s non-Canadian operations, but positive full-year results were achieved by all of the key profit contributors, including the U.S. utilities UNS Energy and Central Hudson, as well as the firm’s regulated Canadian utilities.

Cash flow from operations remained highly positive, while free cash flow (operating cash flow minus maintenance capital expenditure) covered the dividend adequately.

The balance sheet remains fully levered, with a debt to capital ratio of 55% and high investment-grade ratings from S&P and DBRS.

The year was especially active for Fortis on the corporate side, with the ongoing integration of the 2014 acquisition of UNS Energy, the C$800 million liquidation of a commercial real estate portfolio, the sale of non-core generation assets in New York and Ontario, and a pending US$266 million acquisition of natural gas storage facilities in British Columbia.

Another large acquisition also looms, as the company has made a formal cash-and-share offer of more than US$6 billion to acquire the U.S. transmission utility ITC Holdings Corp. The transaction is expected to close toward the end of 2016.

Fortis intends to grow the dividend 6% annually through 2020, extending the 40-plus years of uninterrupted dividend growth. Fortis is our favorite Canadian utility, and with a yield of 3.8% and a fair value of C$41/US$30, the stock is a comfortable holding in the Dividend Champions Portfolio.