The Top 3 Canadian Income Stocks
Table of Contents
Great Big Profits from the Great White North
The information and advice you’re about to read in “The Top 3 Canadian Income Stocks” comes to you from the research team at Canadian Edge, the only U.S. advisory focused solely on Canada, home to arguably the world’s strongest economy and the best—and SAFEST—income investments.
We’ve studied and invested in the Canadian market for decades. In our view, there’s no better place for spectacular dividend yields—and massive capital gains too! We’ve built our years of success on a laser-like focus on the two strongest segments of the Canadian investment universe: high-yielding blue chips and real estate investment trusts.
While the tightwads of the Dow dribble out weak 2% dividends, Canadian firms routinely crank out FOUR TIMES more—and they often send payments out monthly.
There are about 300 high-yielding Canadian stocks on the market. 36 are suitable for U.S. investors—and we follow them all at Canadian Edge.
We look at a company from every angle. Then we assign every stock we follow a weight. This takes out the guesswork, so you can sit back and collect your distribution checks without worry. You simply won’t find this information anywhere else.
The Canadian stocks we cover have crushed the competition. The remaining 7 out of 10 recommendations we made in our charter issue in 2004 are up 399.5%. Meanwhile, the S&P 500 is up just 113.9%.
Canadian Edge readers have racked up some pretty impressive capital gains: 395.1% in energy… 251.4% in utilities… 232.4% in financials… 228.2% in telecommunications… 189.8% in telecommunications… 185.5% in energy… 189.8% in telecommunications… 178.6% in utilities… and a lot more.
Don’t deny yourself the raw profit-building power of the Great White North’s world-beating economy for a moment longer. Join the happy band of Americans piling up profits north of the border. Try a no-risk 90-day trial subscription to Canadian Edge now.
I probably don’t have to tell you what dividend-paying stocks can add to your portfolio.
I’m sure you already know that the best ones give you steady—and ideally rising—income, along with the potential for strong capital gains. They also add stability, particularly utilities, because people have to buy essential services—power, water and electricity—no matter what the economy is doing.
The proof is in the market. Traditional regulated utility stocks are a good proxy for dividend increasers. Look at how well they did in past market meltdowns:
When the Dow and S&P 500 each shriveled by more than 19% in the fall of 1998, the average utility stock rose 4%. After the market plunged in the dot-com crash of March 2000, utilities were up 28% nine months later—and have since risen by 208%. The tech-heavy NASDAQ 100 index is still underwater by 33% after all these years.
But what if I told you that I’ve found a place where all these qualities are supercharged?
Where companies are based on even stronger fundamentals. Where dividends are fatter. And where safety-conscious investors can still tap into stocks that are set to skyrocket and still sleep soundly at night.
I know what you’re thinking: If such a place existed, surely every investor would know about it, right? You’d think so, but in reality only a handful are paying attention, which is a shame, because these rock-solid, cash-spinning investments couldn’t be closer—and easier to buy.
In fact, they’re sitting right in our backyard. In Canada.
My name is Deon Vernooy, and I’m the chief investment strategist at Investing Daily’s Canadian Edge, the most comprehensive advisory for building wealth in Canada.
I’ve been studying the Canadian economy for 27 years, and I’ve come to one undeniable conclusion: If you’re not holding high-quality Canadian stocks in your portfolio, you’re missing out on extraordinary—and safe—gains that simply aren’t available here at home.
The best part? Unshakable dividend income from proven high-yield companies. Canadian investors demand generous dividends, and Canadian companies are famous for payments that steadily rise. These dividends are large and consistent, with a long-standing track record.
I can’t wait to get started showing you the unparalleled profit-making power of Canadian dividend stocks. As we move through this report, I’ll show you, step-by-step, how to spot the best ones for your portfolio, which sectors have the best prospects for gains and, perhaps most important, how to steer clear of the Canadian dividend stocks that are headed off a cliff.
Before we go any further, I’d like to introduce you to the first of our top three high-dividend Canadian stock picks. I think it offers a hands-on example of how these companies stand out from their U.S. peers—and most importantly, how investors benefit. It will also give you a sense of the thoroughness of the analysis we provide in Canadian Edge. In every issue, we give you our clear, concise analysis and unbiased investment opinion in plain, everyday English. You get no weasel words or incomprehensible brokerspeak. Just the facts.
Powered by industry-leading investments in advanced networks and media content, Bell communications services are offered under the Bell Canada and Bell Aliant brands. These include fiber-based IPTV and high-speed Internet services, 4G LTE wireless, plus home phone and business network and communications services, including data hosting and cloud computing.
Bell Media is Canada's premier multimedia company with leading assets in television, radio, out of home and digital media, including CTV, Canada's #1 television network, and the country's most-watched specialty channels.
To accelerate Bell’s broadband content strategy, BCE is a significant investor in Canada’s leading sport and entertainment institutions, the Montreal Canadians and Maple Leaf Sports and Entertainment. The Source is one of Canada's largest consumer electronics retailers with over 650 locations nationwide ,offering Bell TV, Internet and Mobility products and home entertainment, home office and sound products.
With the integration of Bell Aliant, Wireless, TV, Internet and Media growth services accounted for 79% of BCE revenue in 2014, up from just 64% in 2008. Total subscribers at the end of 2014 numbered 21.2 million, an increase of 3.7% over 2013.
BCE announced a 5.3% increase in the common share dividend for 2015, the eleventh such increase since the end of 2008 representing overall dividend growth of 78%. Total shareholder return in 2014 was 21.7%, well ahead of BCE’s industry peers including major U.S. operators as well as the S&P/TSX Composite Index. Five-year total shareholder return was 139% and 194% since the end of 2008 following the implementation of Bell’s transformational strategy.
Get all you need to get in on the ground floor of Bell Canada—before its bulletproof distribution and smart growth strategy catch other investors’ attention—when you take a 90-day risk-free trial to Canadian Edge now.
To demonstrate how resilient the best Canadian high-dividend stocks are, I’d like to tell you how a group of them survived—and thrived—during a regulatory change that many investors thought would do many of them in.
First, a little bit of history: Like many Canadian income stocks, all three of our top picks once operated as income trusts. Until January 1, 2011, these instruments were like U.S. master limited partnerships (MLPs)—pass-through entities that didn’t get taxed at the corporate level but only at the investor level.
By avoiding the double taxation inherent in regular corporations, income trusts were able to distribute more cash to unitholders. There were three main types: (1) oil and natural gas production; (2) power and pipeline; (3) real estate investment trusts (REITs); and (4) general businesses. More than half of the roughly 250 Canadian income trusts were of the oil-and-gas-production variety.
On October 31, 2006, the Canadian government announced that all income trusts except REITs would lose their tax-advantaged status and be taxed at the company level—just like corporations—starting in 2011.
January 1, 2011, came and went, taking income trusts’ tax-free status with it. All trusts (except qualifying REITs) are now subject to tax at a rate roughly equal to corporate tax rates. Consequently, most trusts decided to convert to corporations because with tax rates equalized, a corporate structure gives management much more flexibility than the income trust structure.
Canadian income trust investors worried about the change for four years, but they needn’t have. Today, the high-yield legacy that income trusts have established lives on in the new corporations. In fact, many trusts experienced “cut-less conversions” in which they kept paying the same dividend amount despite the new tax.
One reason for that is Canada’s federal corporate tax rate, which is one of the lowest in the world at 15%, almost half the U.S. rate. So the additional cost of being taxed at the entity level is a lot less burdensome in Canada than it would be almost anywhere else.
But a low tax rate is just the beginning of the story. The emergence of these high-powered income stocks, which are leaders of a new breed of high-yielding equity never before seen, is a victory of fundamental supply and demand.
Simply put, investors want yield, and public companies have to compete for capital. That has encouraged former trusts to keep their dividends high. After all, distributing a big slice of cash flow attracts investors, and it has the added benefit of instilling discipline on management that might otherwise get a little too aggressive when it comes to looking beyond the confines of the business plan.
These income stocks’ outsized dividends dwarf those of a typical U.S. corporation and continue to be much higher than the paltry yields offered by the conventional stocks and bonds most advisors try to shove into clients’ accounts. And as the low- and no-cut conversions prove, management has discovered that it’s possible to pay out big and grow their businesses at the same time by using capital efficiently.
It’s certainly not news that investors are more focused on yield than ever before. And these companies have realized they can harness that demand to issue low-cost equity that can fund everything from acquisitions to asset construction. Asset growth, in turn, means cash flow growth, which means a greater ability to pay dividends.
This is one reason we’ve sifted through the list of former trusts to make our top three Canadian dividend stock picks. The regulatory change has put them through a sort of boot camp that U.S. companies have never had to endure: Not only were they stress-tested by the economy and credit markets during the recession, but they also thrived despite the Canadian government’s restrictions on how they raised capital. That gives you the reassurance you need that these companies have strong underlying businesses with powerful growth prospects.
It all adds up to windfall gains and hefty yields and total returns in the coming years—all with much less risk than investing in most U.S. sectors. That’s perhaps the most powerful reason investors need to buy into Canada’s top dividend stocks right away.
Best of all, unlike most foreign investments, buying shares of Canadian dividend stocks is just as easy as investing in a U.S. company. You can do it through your broker right now. To make things even simpler, many Canadian companies are listed on U.S. stock exchanges.
Investors in Canadian high-income stocks enjoy the added benefit of being paid in Canadian dollars, a currency that should continue to appreciate against the U.S. dollar.
Canada is in good shape, with its banks solid and federal budget closest to balance among major countries. Canada was unburdened by a subprime-lending-driven credit bubble, its banks largely avoided risky lending practices and its government and people have been spared the massive costs associated with patching up holes in the balance sheets of companies deemed “too big to fail.”
It entered the 2008/09 financial crisis on a positive long-term fiscal trajectory, having turned in a decade’s worth of balanced budgets, and made slow but steady progress whittling away the federal debt. Canada is in an excellent position to extend its global influence, attract increasing amounts of foreign capital and grow at a more durable rate than its developed-economy peers over the next 10 years.
The Canadian dollar climbed a wall of worry in 2012 but managed to exit at virtual parity with the U.S. dollar. And it’s difficult to conceive of any U.S. dollar collapse that wouldn’t benefit Canada’s currency, and therefore the U.S. dollar price of its stocks and U.S. dollar value of its dividends. In fact, dividend-paying Canadian stocks are likely to prove the perfect hedge for U.S. investors if there is a U.S. dollar collapse, all the while generating world-beating yields.Now let’s take a look at the second of our top three picks in Canadian high-dividend stocks. It’s the safest of the three investments, because it operates as a general contractor that profits long-term contracts for its services.
Every day, TELUS is creating value by:
- Focusing relentlessly on their top priority to put customers first to further strengthen their differentiated competitive position and financial performance
- Managing a strong and diversified mix of assets across the country that provides both growth and safe-haven attributes
- Delivering on a disciplined capital allocation program focused on long-term growth investments, while simultaneously executing on multi-year dividend growth and share purchase programs
- Returning USD 1.2 billion to shareholders in 2014 and USD 8.9 billion since 2004
- Establishing and evolving one of the most recognizable and one of the 10 most valuable brands in Canada
- Driving continued profitable customer and revenue growth with their 4G LTE wireless network’s Optik TV and high-speed Internet services
- Focusing on high-quality service implementation, economics and customer care in the business, public sector and healthcare markets
- Maintaining the industry’s strongest balance sheet and solid investment grade credit ratings, enabling ready access to capital market funding
In February 2015, TELUS’s Board declared a quarterly dividend USD 0.32 per share on common shares. This first quarter dividend represents an 11.1% increase from the USD 0.29 quarterly dividend paid on April 1, 2014.
Any report on Canadian investing would be incomplete without mentioning the energy sector. Here too, the country has significant investment appeal. Here’s why.
First, global production of oil continues to exceed demand, resulting in inventory build ups-- projected to average 1.7 million bbl/d through the first half of 2015. It is expected that inventory builds will slow a little during the second half of the year, as demand rises and non-Organization of the Petroleum Exporting Countries (OPEC) supply growth slows, particularly in the United States and Canada, because of lower oil prices. The expected inventory builds in 2015 are on top of an estimated average 1.0 million bbl/d increase in 2014.
Second, the best Canadian energy producers are still extremely cheap. Not only do they trade at huge discounts to the value of their reserves in the ground, but they’ve been battle-tested in some of the toughest resource markets in history.
Third, their debt, which was never really very high, is at its lowest level in years. They’re having no problems accessing credit. Virtually every company that could refinance its debt has done so at the lowest interest rates since the 1950s, making a reprise of the 2008 credit crunch nearly impossible.
Yields are still in the high-single-digit/low-double-digit zone and are now protected by extremely conservative assumptions for realized selling prices, which are backed by systematic hedging. Costs are falling, spurred by penny-pinching management but also by the long-awaited drop in production costs due to slack conditions in the energy-services business.
To be sure, there are still some near-term risks. Producing oil is a barely profitable proposition at current prices and a serious drag on profits for many high-debt companies leveraged to oil.Nonetheless, the global economy will return to growth, and increased energy demand will follow along for the ride. However, the temporarily high oil supplies have eliminated the desire and wherewithal for the kind of permanent adoption of new technology to reduce energy consumption, such as the massive switch to small cars was to the 1970s.
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At the same time, the energy industry remains very cautious regarding new production. One reason is that oil prices fell over 50% last year. As a result, producers are still thinking about how they can cut costs to save cash rather than how to ramp up new output for profit.
In fact, when executives from three large Canadian energy producers with sizable U.S. shareholder bases were asked at what level of energy prices they would ramp up drilling and distributions again, their unanimous response was that prices would have to stabilize at a much higher level—probably $65 per barrel—to stir them from otherwise very defensive postures.
As an investor, that’s quite comforting in one sense. It means these energy companies have built in very conservative assumptions to budgeting, hence their high dividends. They also remain focused on holding down debt and keeping costs under control as the best way to outlast weaknesses in the economy. That should help their chances of surviving a low-price environment and staying on track to participate in a recovery.
It also means, however, that in the future, the people running these companies are going to be even more skeptical than usual when it comes to reacting to increases in energy prices.
Canadian energy companies are far more interested in using their cash windfalls to enhance their long-term sustainability by cutting debt and expanding reserves than in increasing output meaningfully. Any additional cash flow they gain from higher energy prices will almost certainly be used first and foremost to trim debt. Priority two will be to expand their reserve bases and then return some to shareholders, most likely as share buybacks and possibly as special cash distributions.
Only if management is fully convinced that higher prices are here to stay will they really ramp up output. And that’s likely to take a prolonged period of much higher oil and gas prices than what we have now. This cautious sentiment is reflected across the industry. The upshot is now that the global economy and energy supplies are dwindling, few producers are going to really believe better times are at hand. That means supply increases are going to lag demand growth, quite possibly for years.
Oil and gas prices are eventually going to take out the 2014 highs. In fact, it’s going to take the same factors that ended the 1970s energy bull market—the same factors that have ended every commodity bull market in human history—to restore the balance of market power to energy consumers, where it was during the 1990s.
Those factors are real demand destruction from permanent conservation, a switch of meaningful energy production capacity from fossil fuels on par with the move to nuclear power in the 1970s and a genuine discovery of fossil fuel supplies that’s cost-competitive with current conventional sources. None of the factors are even possible at today’s energy prices, and they will only be possible after oil and natural gas make at least one more extremely profitable run for the roses.
To help you take full advantage of the improving supply/demand picture for oil and gas, here’s the last of our three Canadian high-dividend picks, an oil developer that offers a lower yield than some of its peers but by far the best combination of balanced production, conservative finances, healthy reserves, low costs and seasoned management.
One of Canada’s largest energy companies by market value after a 2009 merger with Petro-Canada, Suncor made the move on the expectation that its Canadian oil sands division would account for three-quarters of the firm’s total cash flow. And for the next two years it appeared they were headed in the right direction, with its stock more than doubling in value to more than USD 36 by February 2011.
But a funny thing happened on the way to the forum; cheap natural gas prices and environmental concerns over the relative dirty oil produced by the oil sands put a crimp into sales that has only recently been alleviated by China’s interest in acquiring rights to as much of this energy as it can gets hands on.
Suncor has a track record of delivering responsible growth and generating strong returns for shareholders. Since Suncor became publicly traded in 1992, daily oil sands production has increased by 600%. Over the same period, Suncor's total return on investment has returned 5,173%, versus the S&P 500 total shareholder return of 373%. The company’s future growth opportunities are world-class, with a compounded annual growth rate potential of 10% to 12% in oil sands and 7% to 8% overall until 2020.
Although the relatively high cost of producing oil sands and the potential for project delays expose Suncor Energy’s stock to some volatility, the company remains the best-positioned firm to benefit from Canada’s world-class oil sands.
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With a solid and growing reserve base, a healthy balance sheet and long-term production gains ahead, Suncor Energy is a strong buy. If energy prices do surprise to the upside, this stock will, as well.
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Safety is our middle name. You benefit by reaping big profits from steady, predictable Canadian income stocks. You simply do NOT need risky investments when you’re safely getting double-digit distributions plus high appreciation.
Here’s just a small sampling of some of the gains our picks have racked up for Canadian Edge readers over the last ten years:
- 395.0% on one of the largest independent midstream operators in Canada
- 251.4% on one of Canada’s largest utilities
- 232.3% on a solid financial company
Yes, we’ve enjoyed tremendous success at Canadian Edge. And with what I’m seeing from the Canadian economy, I believe the next 24 months will bring us greater profits than EVER BEFORE!
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There’s no doubt about it: A selection of high-quality Canadian income stocks should be a cornerstone of your portfolio in the coming years. Canada’s world-beating economy is bursting with profitable opportunities for savvy investors, but you must have the right information at your fingertips—at the right time—to make it happen. That’s exactly what you get with Canadian Edge.
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