October turned out to be a thoroughly enjoyable month to be a long-term equity investor, with the MSCI Global Equities Index adding 7.8%, the MSCI Emerging Markets Index 7.1% and the S&P 500 index 8.3%. Dividend-based investment strategies lagged somewhat, with the S&P Global Dividend Aristocrats Index adding 5.4% during this period.

The October performance of the Dividend Champions Portfolio was also much improved (+4.3% in USD) as the Canadian dollar strengthened against the U.S. dollar over the month.

We compare the performance of the Dividend Champions Portfolio against the broad Canadian equity market index as this is the universe from where we can select stocks for this portfolio. Over the almost six months since inception of the portfolio, the Dividend Champions performed considerably better than its benchmark as indicated in the table.

Highlights during the month included solid returns from Brookfield Infrastructure Partners (TSX: BIP-U, NYSE: BIP), Suncor Energy Inc. (TSX: SU, NYSE: SU) and Finning International (TSX: FTT, OTC: FINGF) with increases of 12%, 9% and 7% respectively.

Brookfield Infrastructure has been working toward finishing the $8.9 billion acquisition of the Australian port and rail operator, Asciano. However, the deal may now be blocked by interloper Qube Logistics that acquired with partners, a 19.9% holding in Asciano. The Australian Competition and Consumer Commission also expressed “Red Light” concerns about the takeover.

Brookfield, run by experienced dealmakers, may still come up with a creative and most likely, more expensive solution to get the deal done. Somewhat surprisingly, the share price of Brookfield moved up as this news unfolded during the month and is getting close to our fair value estimate. Until we receive more certainty how Brookfield will proceed, we are moving the Buy recommendation to Hold.

October also produced its fair share of losers with Husky Energy (TSX: HSE, NYSE: HUSKF), bringing up the rear with a 15% drop after poor results. Whistler Blackcomb (TSX: WB, OTC: WSBHF), which we moved to a Hold rating last month, lost 6% during the month as the stronger currency weighed on sentiment.

Husky Energy is one of a few commodity producers that made it through our Dividend Champions selection process. The recent results produced by the company was particularly poor, and the Board also decided to pay a share dividend in lieu of the normal cash dividend. In our view, the quarterly issue of a considerable number of new shares will be dilutive and will not be in the best interest of shareholders.

The implicit bad news from the board of directors is also concerning. In making this decision, the board had to consider numerous factors, including current and future profitability, commodity prices, capital requirements and the financial condition of the company. It would seem that the board sees difficult times ahead for the company.

Husky carries the lowest Quality Score of all our holdings in the Dividend Champions, and despite the upside potential, should energy prices recover, we do not believe that the risk justifies the potential reward. We have therefore decided to sell our holding.