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Canadian Income Stocks!

By: Hao Jin

Article Category: SML Stock Market

18 High-Dividend Canadian Stocks


The 2008 financial crisis uncannily echoes what happened in Japan more than a decade ago. In the 1990s, the Japanese banking systems had become overloaded with bad loans after a property bubble collapse, according to Gillian Tett, author of Fool's Gold. The investor psychology seemed dangerously similar too. If this is the case, investors who buy high yield stocks now could collect big dividends while the economy fights to get back on its feet.

The Associated Press (AP) reported on Friday that the U.S. federal budget deficit has surged to an all-time high of $1.42 trillion. The Obama administration projects deficits will total $9.1 trillion over the next decade. For weeks the US dollar's decline sent gold to all-time highs and helped oil to over $78. Canada happens to have plenty of these commodities.

The following are 18 Canadian companies listed on U.S. exchanges with market caps greater than $1 billion, reasonable P/E ratios, and dividend yields greater than 3.5% (sorted by yield):


Name Symbol P/E Yield Market Cap
PROVIDENT ENERGY TR (PVX) 9.0 11.1% 1.66B
PENGROWTH EGY UTS (PGH) 5.0 10.6% 2.61B
PENN WEST ENERGY TRU (PWE) 5.1 10.1% 6.90B
ENERPLUS RES FD (ERF) 5.8 8.4% 3.97B
HARVEST ENERGY TRUST (HTE) 4.2 8.1% 1.14B
B C E INC (BCE) 21.7 6.1% 18.82B
TELUS CORP (TU) 8.6 5.8% 9.41B
PRECISION DRILL TRST (PDS) 4.3 5.7% 1.91B
BANK OF MONTREAL (BMO) 17.3 5.1% 27.68B
TRANSALTA CORP (TAC) 21.9 5.1% 4.07B
BAYTEX ENERGY TR UTS (BTE) 12.8 5.0% 2.77B
CANADIAN IMP BK COMM (CM) 3.7 5.0% 2.98B
BROOKFIELD PTYS CP (BPO) 6.2 4.6% 4.47B
TRANSCANADA CORP (TRP) 15.1 4.3% 21.71B
SHAW COMM CL B NV (SJR) 15.6 4.2% 8.24B
ROGERS COMMUN CL B (RCI) 16.8 4.0% 16.57B
BANK OF NOVA SCOTIA (BNS) 16.7 3.9% 45.86B
TORONTO DOMINION (TD) 17.4 3.5% 53.70B

These 18 high-dividend companies are in 4 sectors: Energy, Financial, Telecom and Utilities.

Energy Income Trust
High demand from China and a weak US dollar make the energy sector attractive. 7 companies belong to energy income trust category:

Symbol Operating Margin Debt/Operating CF 52-wk Range
(BTE) 36% 1.0 7.84 - 26.44
(ERF) 51% 0.7 12.85 - 28.58
(HTE) 10% 3.2 3.00 - 11.55
(PDS) 28% 2.0 2.00 - 12.21
(PGH) 22% 2.5 4.51 - 11.90
(PVX) 23% 1.5 2.23 - 6.84
(PWE) 58% 2.3 6.77 - 19.01

These income trusts, like REITs, are required to pay out a large portion of their earnings as dividends. In 2011, after they convert from income trust into corporations, they most likely will still be high-dividend players. 52-week-price-range data shows these income trusts are very volatile. Their recent runs could be slowed or reversed if the US dollar shows strength.

For sophisticated traders, trading commodities directly might provide a higher reward. For income investors, commodity companies might be a better choice because they provide some buffer, in addition to regular dividends.

There is a small ETF called Claymore Canadian Energy Income (ENY) which includes most of these companies. Its yield is 5.45%.


Financials
The Following are comparisons between Canadian banks, U.S. major banks averages, as well as JPMorgan Chase (JPM), one of the most conservative banks in the US. Clearly Canadian banks are much more profitable.

Description P/E ROE % Div. Yield % Net Profit Margin %
U.S. Money Center Banks n/a 1.1% 1.1% 1.3%
JPMorgan Chase & Co. (JPM) 52.6 2.9% 0.4% 15.5%
Toronto-Dominion Bank (TD) 17.6 9.4% 3.5% 22.2%
The Bank Of Nova Scotia (BNS) 16.8 13.2% 3.9% 28.9%
CIBC (CM) 3.8 7.0% 5.0% 18.8%
Bank of Montreal (BMO) 17.4 9.2% 5.1% 21.8%


Telecom
Competition in the telecom sector is heating up in Canada. When BCE (BCE) and Telus (TU) announced they will start carrying the iPhone next month which puts an end to the exclusivity that Rogers (RCI) has enjoyed, it sent RCI's short ratio to a stunning high of 33. Unlike those 3, Shaw Communications (SJR) primarily focuses on cable services.

Utilities
TransAlta (TAC) is an electric utility company while TransCanada (TRP) operates through two segments: pipelines and energy. TAC's short ratio of 5.8 makes me nervous.

Conclusion
After boldly buying when others were selling, Warren Buffet is pulling back, buying fewer stocks while investing in debt. He is warning that the economy, though on the mend, remains deeply troubled.

In addition, the Canadian dollar is a strong threat to the Canadian economy. CurrencyShares Canadian Dollar Trust (FXC) appreciated over 13% this year. Mark Carney, the governor of the Bank of Canada, has warned that the Canadian dollar appears to be moving away from the fundamentals.

The iShares MSCI Canada Index (EWC) year-to-date's return is an astonishing 46%. A great stock can be easily turned into a bad investment, if you buy it at a higher than reasonable price. It all depends on the starting price.

Nonetheless, high-dividend, fundamentally-strong companies are more likely to survive in this stormy market. One of the greatest ways to protect your portfolio is through asset allocation: to make sure not a single sector accounts for more than 20% of your portfolio. Be sure to re-balance as it will automatically enroll you into the "buy low, sell high" camp.

Disclosure: I have long positions on BMO, BNS, CM, PWE, TD, and TRE. All data is from Yahoo Finance (http://finance.yahoo.com/) as of Oct 16, 2009.

Stocks: BCE, BMO, BNS, BPO, BTE, CM, ENY, ERF, EWC, FXC, THE, JPM, PDS,
PGH, PVX, PWE, RCI, SJR, TAC, TD, TRP, TU

About Author: Hao Jin, CFA
Contributing Writer