Canada’s Warren Buffett
Working on a total-return basis, 45 of the 76 income trusts in the Canadian Edge “How They Rate” coverage universe that converted have outperformed both the S&P 500 and the S&P/Toronto Stock Exchange Composite Index since becoming corporations, some spectacularly.
— Roger Conrad, Canadian Edge
Starting in January, virtually all Canadian income trusts became ordinary, tax-paying corporations. Many announced cut-less conversions where their dividend amounts remained the same despite the higher corporate tax rates. Others announced modest cuts but maintained high dividends. And still other Canadian income trusts decided not to convert (at least not yet) because of tax-loss carryforwards, foreign-source income, or a variety of other reasons.
According to Roger Conrad, editor of Canadian Edge, the bottom line is this: as a whole, after all conversions, these former Canadian income trusts still pay an average dividend yield “comfortably above 7 percent” and the 15 percent withholding tax in U.S. IRA accounts has been eliminated. The elimination of dividend withholding alone boosts the cash distributions received by
All Canadian Stocks Must be Considered Opportunities Now
With the trust tax advantage gone, it’s time to look at the entire universe of Canadian stocks for investment opportunities. I thought a good place to start would be to piggyback on some of
Buffett wannabes in the
So, the question is: who is the Warren Buffett of
German born and a Harvard MBA, he is a billionaire and founder of the Montreal-based investment management firm Jarislowsky Fraser. Prior to the 2008 financial crisis, he advocated that
- Your best bet for building wealth over the long term is to build a portfolio of high-quality large-company stocks that have great management and a track record of doubling earnings every five to seven years – preferably in non-cyclical businesses.
- Choose stocks over alternatives such as property (cyclical) and bonds (lower returns over the long haul) and be wary of alternative investments, such as gold and art.
- Start as early as you can and select and hold these companies for the long term. Do not trade unless you have clearly made a mistake. Trading only adds dealing costs and possibly triggers a tax charge too. Be a long-term investor, not a gambler, and keep costs to a minimum.
- Shares produce an average real return of 5% to 6% a year (after inflation). The earlier that you can start, the more miraculous will be the effects of compounding over a working life.
- Put your plan in place and do not waver in the face of short-term market fluctuations. You do not own the market, only those companies in which you are invested.
- Look at market bubbles as an occasional opportunity to take profits and market slumps as an opportunity to top up your holdings with cheap purchases.
- Do not be swayed from your plan by smooth-talking financial advisers or stock brokers. Beware of mutual funds because of their high charges and often pedestrian performance.
- Keep yourself informed on the companies in which you invest. Make a point of reading your companies’ financial reports.
I can’t rate Mr. Jarislowsky higher because it is hard for “average Joe”
5. Irwin Michael
Not a billionaire, but a Wharton MBA and a fabulous deep-value investment manager of the ABC Funds. He currently likes small-cap Canadian companies, saying “Canada is the preferred place in the world” to invest. According to Mr. Michael:
Large caps are analyzed to death. But with small caps, there’s not a lot of information, so you have to dig it out yourself, and that means there are more mispriced companies in the market relative to large caps.
His mutual funds are only available in
4. Bruce Flatt
CEO of Toronto-based Brookfield Asset Management (NYSE: BAM). The company was founded more than a century ago in
I like the fact that Flatt heads a publicly-traded company that
Here in the
Edwards is a cool dude and billionaire. As a true Canadian, he loves hockey and owns the Calgary Flames. His day job is being vice chairman of Calgary-based Canadian Natural Resources (NYSE: CNQ), which is one of the largest oil and natural gas producers in the world. Like Flatt, Edwards focuses on “real assets” rather than stocks, but his expertise in energy investments is unparalleled. Since CNQ began trading on the New York Stock Exchange in 2000, Canadian Natural has outperformed Berkshire by an astounding 1300 percentage points:
To be fair, much of that outperformance is due to the rise of oil prices and the industry-wide outperformance of the energy sector during the first decade of this century. Edwards is also a director Ensign Energy Services (
Not just a billionaire, but a billionaire almost four times over. Founder of Montreal-based Power Corporation of Canada (
Over the past 15 years, Power Corp. of
To say that Desmarais’ outperformance is impressive would be an understatement. The only reason Desmarais is not number one in my ranking is that his investment vehicle, Power Corp. of
1. Prem Watsa
Named “CEO of the Year” in 2008 by
Watsa is a great stock picker and, more importantly, shuns risk. Since its inception in 1985, Fairfax Financial’s stock has returned an annualized 22% for shareholders, which matches
The icing on the cake are Watsa’s shareholder letters, which are almost as entertaining as Buffett’s Berkshire letters. Congratulations Prem!
Find the Best High-Yield Canadian Stocks With the Help of Canadian Edge
For income investors looking for high dividend yields, most of these Buffett-like stocks won’t work because they retain most of their earnings for reinvestment rather than pay them out to shareholders in the form of dividends.
Consequently, income investors’ best bet are Roger Conrad’s top recommendations in Canadian Edge, which focuses on the highest-yielding Canadian corporations (formerly known as Canadian income trusts) that have the strongest underlying businesses. As Roger likes to say, buy businesses first and yields only second.
To find out which Canadian income stocks pass Roger’s strict investment criteria, give Canadian Edge a try today!