BCE

(TSX:BCE, NYSE:BCE)

Dividend Yield: 4.5%

Recent Price: C$59/US$46

Fair Value: C$64/US$50

BCE is our top holding in the Dividend Champions portfolio – a position that is well-deserved given its outstanding history as a profitable operator. In fact, the company has a 60-year track record of growing dividends, with the past five years delivering growth of 7% per year.

The company holds a dominant position in the Canadian telecommunications industry, which limits its growth opportunities. However, BCE continues to find ways to generate growth either organically or by acquisition. Fast-growing mobile data and high-speed internet businesses provide organic growth, while selective and targeted acquisitions – such as the 2014 Bell Aliant minority take-out and the proposed acquisition of Manitoba Telecom Services – continue to expand the business.

BCE’s valuation remains attractive in absolute terms, with an enterprise value to EBITDA ratio of just over 8 times and a dividend yield of 4.7%. We estimate the fair value of the stock at C$64 or US$51.

North West Co. Inc.

(TSX:NWC, OTC:NWTUF)

Dividend Yield: 4.3%

Recent Price: C$28/US$22

Fair Value: C$32/US$25

The North West Company is a retailer to underserved rural communities and urban neighbourhood markets in northern and western Canada, rural Alaska, the South Pacific and the Caribbean. Its stores offer products and services with an emphasis on food.

The share price has been weak after recent below-par quarterly results caused by a one-off jump in employment costs and some softness in the company’s Canadian stores. Capital spending on the revamping of 42 high profit potential stores is also temporarily depressing free cash flow and dividend growth.

However, North West has a long history of operating successfully in these areas and has built up an enviable track record. Key financial metrics including profit margins and returns on equity are considerably better than the industry averages, cash flow remains adequate, the balance sheet is strong and the dividend yield is attractive.

Innvest REIT

(TSX:INN-U, OTC:IVR.F)

Dividend Yield: 7.3%

Recent Price: C$5.45/US$4.26

Fair Value: C$6.31/US$4.83

The company is one of the top Canadian hotel landlords, with well-known brands such as Fairmont, Comfort Inn and Delta in its portfolio. Management and board changes in 2014 and 2015 resulted in improved corporate governance, the sale of underperforming properties, and the refurbishment of a considerable portion of the portfolio.

Apart from Alberta, where lower energy prices are depressing economic activity, the business environment for hotel operations in other parts of Canada remains positive, with solid growth reported industrywide in 2015 and further growth expected in 2016. The weak currency is also supporting tourism; overnight visits from the US increased by 8% in the first 11 months of 2015 and all international visitors grew by 7%.

Although debt levels remain elevated, the balance sheet and financial charges coverage improved during 2015 while the dividend payout ratio declined to a more comfortable level. This is an opportunity with considerable upside potential but not without risk.

K-Bro Linen

(TSX: KBL, OTC: KBRLF)

Dividend Yield: 2.8%

Recent Price: C$42/US$33

Fair Value: C$46/US$36

K-Bro Linen announced poor results for the final quarter of 2015. Earnings per share fell 37% compared to the previous year. For the full year earnings per share dropped by 12% while the dividend increased 1%.

The poor result is partly explained by a 15% jump in fourth-quarter operating costs, mostly associated with the commissioning of a new C$36 million laundry plant in Regina. Per-share results also were reduced by a 12% increase in the share count.

The company has an excellent long-term track record of stable and profitable business operations. We look forward to a strong recovery in profit growth in 2016 followed by solid growth in 2017, with consensus estimates now indicating a 32% growth in earnings per share between 2015 and 2017.

This is a stable, if unexciting, business. The stock is very suitable for investors who value stability and few surprises. Investors should use price weakness to buy K-Bro below our fair value estimate of C$46 or US$36.