Swap Two, Hold the Rest

By Roger Conrad • April 6, 2012 • Portfolio Update

On the plus side are record-low corporate borrowing costs, accelerating growth in the US, still robust demand for Canada’s natural resources and a return to dividend growth.

On the minus side are crashing natural gas prices, credit insecurity for anyone who needs it, growing economic weakness in Europe and uncertainty in Asia.

How Canadian Edge Portfolio companies have fared this year–at the operating level and in the stock market–has largely depended on where they’ve come down on these issues. As fourth-quarter and full-year 2011 earnings results have demonstrated over the past two months, CE recommendations are generally faring well as businesses.

The notable exception this time around was Colabor Group Inc (TSX: GCL, OTC: COLFF), which cut its dividend by 30 percent to cut debt in response to tough business conditions.

As I explain in Dividend Watch List, I continue to hold Colabor as a bet management will continue to execute its long-term strategy to consolidate Canada’s fragmented food and related products distribution sector.

So long as it’s successful in that endeavor, we’ll realize explosive returns. That’s been our experience with TransForce Inc (TSX: TFI, OTC: TFIFF), which overcame numerous hurdles to build a successful transport and logistics business.

Colabor, however, has proven to be considerably more sensitive to economic ups and downs than I had anticipated. For this reason I’ve moved it to the Aggressive Holdings.

Colabor Group is also a hold, at least until we see first-quarter numbers on or about May 4.

As for other Aggressive Holdings, the 30 percent decline in natural gas prices since the beginning of 2012 has turned the world on its ear for oil and gas producers.

It’s no surprise that the crash has pushed the likes of former pick Perpetual Energy Inc (TSX: PMT, OTC: PMGYF) to the brink of bankruptcy. Perpetual has been reduced to selling off assets to pay off maturing debt and appears increasingly hard pressed to execute capital spending to boost liquids production.

Even companies that had been managing the long-term decline in gas prices, however, are being pushed to the wall by the latest drop.

Put another way, virtually all producers of natural gas are profitable at USD6 per million British thermal units. Most are from USD4 to USD5, particularly if they also pump oil and “wet” gas that contains natural gas liquids. But almost no one is at USD2, much less USD1.

At that point cash flow dries up, and management has to make a choice: Pull back on capital spending, make up the shortfall by borrowing or cut/eliminate the dividend.

Make the Swap

Enerplus Corp (TSX: ERF, NYSE: ERF) has made great strides in recent years increasing its output of oil, particularly from reserve-rich properties in the Bakken trend. This success was clearly shown in the company’s solid fourth-quarter and full-year 2011 earnings, detailed in a Feb. 24 Flash Alert.

As I also pointed out, however, Enerplus’ cash flow, dividend and share price follow commodity prices. And natural gas is still a major part of its business despite efforts to ramp up output of light oil and natural gas liquids (NGL).

The company sold its gas for an average price of CAD3.44 per thousand cubic feet–a measure roughly equal to 1 million British thermal units–in the fourth quarter.

This was good enough to fund its capital program, hold its distribution at CAD0.18 per month and keep credit needs within guidance.

But with no output hedged in 2012 thus far, it’s likely to get a dollar per million British thermal units worse in the first quarter.

That may not be enough to trigger a dividend cut, particularly with oil production ramping up and prices high.

But it does raise the risk enough for me to recommend a move out of the stock and into a company with a similar yield but much less exposure to the gas price meltdown, High Yield of the Month and new Aggressive Holding Pengrowth Energy Corp (TSX: PGF, NYSE: PGH).

Another problem faced by energy producers is the threat of rising costs, one reason for my recommendation to sell Penn West Petroleum Ltd (TSX: PWT, NYSE: PWE) and move to High Yield of the Month and new Aggressive Holding PetroBakken Energy Ltd (TSX: PBN, OTC: PBKEF).

But the main one is simply that the latter is a better choice with much faster production growth, greater exposure to extremely valuable light oil, a stronger balance sheet and a similar yield with a much better chance of growing.

Thanks to a heavy weighing in oil, Penn West isn’t particularly exposed to the crash in natural gas prices. And, as I made clear in a Feb. 16 Flash Alert, the company also seems to be getting its act together to increase production and bring costs under control. PetroBakken is a stronger business no matter how you slice it.

As longtime readers know, I’m a buy-and-hold guy. We’ve been very patient with Enerplus and Penn West for several years, and some readers are likely to question why I’m selling now, especially since both stocks have weakened in recent weeks.

The answer is simply that conditions have changed enough in the energy production business since the beginning of 2012 to merit an incremental move in the Portfolio.

I didn’t foresee this most recent crash in gas prices, which actually are off by about 50 percent since last autumn.

But now that it’s upon us, I want to be as prepared as I can be in case it worsens while staying in the game for a recovery that will almost certainly begin when everyone least expects it.

Owning Pengrowth gives us almost the same yield as Enerplus. And it’s far less vulnerable to continued weakness in gas prices.

This adds up to a less risky way to stay positioned for the eventual rebound.

As for Penn West, swapping it out now for PetroBakken gives us basically the same yield, though at a monthly rather than quarterly frequency. We will take a loss selling now. But with PetroBakken still selling for less than half its highs of two years ago–and definitely in an up-trend–this consideration should be far outweighed by the vastly improved upside.

This is all about trying to be in the very best stocks in a range of sectors that you can be. And that’s what these moves do for us.

The Numbers: Where and When to Find Them

The good news is that’s also true of the rest of the Canadian Edge Portfolio Holdings. Here’s where to find my analysis of their fourth-quarter and full-year 2011 results.

Note I’ve removed Enerplus and Penn West from this list and replaced them with information on new Aggressive Holdings Pengrowth and PetroBakken.

Conservative Holdings

Aggressive Holdings

The next big dates concern the release of first-quarter 2012 numbers. I show dates confirmed by companies as well as estimates for those yet to provide announcement details. I’ll review results in Flash Alerts as they appear as well as in the May CE.

Note I’ve dropped Enerplus and Penn West, now considered sold positions. I’ve added their replacements, Pengrowth and PetroBakken. And I’ve removed Provident Energy Ltd, which is now part of Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF) per their now completed merger.

Here are confirmed and estimated first-quarter reporting dates.

Conservative Holdings

  • AltaGas Ltd (TSX: ALA, OTC: ATGFF)–May 4 (estimate)
  • Artis REIT (TSX: AX-U, OTC: ARESF)–May 18 (estimate)
  • Atlantic Power Corp (TSX: ATP, NYSE: AT)–May 11 (estimate)
  • Bird Construction Inc (TSX: BDT, OTC: BIRDF)–Jun. 1 (estimate)
  • Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPUF)–May 7 (confirmed)
  • Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF)–May 9 (estimate)
  • Cineplex Inc (TSX: CGX, OTC: CPXGF)–May 11 (estimate)
  • Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF)–May 10 (estimate)
  • Dundee REIT (TSX: D-U, OTC: DRETF)–May 23 (estimate)
  • EnerCare Inc (TSX: ECI, OTC: CSUWF)–May 9 (estimate)
  • IBI Group Inc (TSX: IBG, OTC: IBIBF)–Jun. 1 (estimate)
  • Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF)–Jun. 7 (estimate)
  • Just Energy Group Inc (TSX: JE, OTC: JUSTF)–May 18 (estimate)
  • Keyera Corp (TSX: KEY, OTC: KEYUF)–May 8 (confirmed)
  • Northern Property REIT (TSX: NPR-U, OTC: NPRUF)–Jun. 14 (estimate)
  • Pembina Pipeline Corp (TSX: PPL, OTC: PBNPF)–May 4 (confirmed)
  • RioCan REIT (TSX: REI-U, OTC: RIOCF)–May 18 (estimate)
  • Shaw Communications (TSX: SJR/B, NYSE: SJR)–Apr. 13 (confirmed)
  • Student Transportation Inc (TSX: STB, OTC: STUXF)–May 11 (estimate)
  • TransForce Inc (TSX: TFI, OTC: TFIFF)–Apr. 26 (confirmed)

Aggressive Holdings

  • Acadian Timber Corp (TSX: ADN, OTC: ACAZF)–May 1 (confirmed)
  • Ag Growth International Inc (TSX: AFN, OTC: AGGZF)–Jun. 8 (estimate)
  • ARC Resources Ltd (TSX: ARX, OTC: AETUF)–May 17 (estimate)
  • Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF)–May 30 (estimate)
  • Colabor Group Inc (TSX: GCL, OTC: COLFF)–May 4 (estimate)
  • Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF)–May 11 (estimate)
  • Extendicare REIT (TSX: EXE-U, OTC: EXETF)–May 8 (confirmed)
  • Newalta Corp (TSX: NAL, OTC: NWLTF)–May 9 (estimate)
  • Noranda Income Fund (TSX: NIF-U, OTC: NNDIF)–May 15 (estimate)
  • Parkland Fuel Corp (TSX: PKI, OTC: PKIUF)–May 7 (tentative)
  • Pengrowth Energy Corp (TSX: PGF, NYSE: PGH)–May 4 (estimate)
  • Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF)–May 11 (estimate)
  • PHX Energy Services Corp (TSX: PHX, OTC: PHXHF)–May 18 (estimate)
  • Vermilion Energy Inc (TSX: VET, OTC: VEMTF)–May 7 (estimate)

Finally, here’s a brief review of what’s been going on at each of these companies since they announced fourth-quarter and full-year results along with year-to-date performance. I also give my brief prognosis and primary reasons for recommending them.

The best way to get started building a portfolio is to buy my High Yield of the Month picks, provided they meet your risk-return parameters. A balanced portfolio should have at least 10 to 12 stocks, preferably diversified over a range of industries.

Conservative Holdings

AltaGas Ltd (TSX: ALA, OTC: ATGFF), which owns and operates power generation, energy pipelines and gas distribution utility assets, has at last retreated below my buy target of USD32, where it’s a compelling buy for anyone who doesn’t already own it.

Since releasing solid fourth-quarter results AltaGas has advanced on several fronts, including reaching an agreement to build a 66 megawatt hydro plant in British Columbia that will serve a range of mining projects.

Up slightly thus far in 2012, this is an invest-to-grow story with plenty of upside. Buy under USD32.

Artis REIT (TSX: AX, OTC: ARESF) has returned more than 21 percent thus far in 2012. The primary reason seems to be renewed optimism about the property market in the energy patch. But the company’s best news since releasing earnings is the announcement of CAD115.2 million in acquisitions, consisting of a Calgary office property and a British Columbia retail property.

The company also completed an over-subscribed equity offering, raising over CAD107 million to finance the purchase. That promises to keep growth going.

The REIT is trading a bit above my buy target of USD15, and I won’t raise that level until there is a distribution increase. But it’s a high-quality company fit for even the most conservative portfolio. Buy under USD15.

Atlantic Power Corp (TSX: ATP, NYSE: AT) is off roughly 3 percent this year, including dividends. That’s despite growing evidence last year’s Capital Power LP merger is paying off faster than expected.

This month the power generator-transmission operator bought another 48 percent interest in an Oklahoma wind farm set to come on stream later this year, with 100 percent of output locked up under long term contracts. This is the kind of deal that will keep dividend growth going in coming years.

The recent pullback has sowed doubt with some investors. But few stocks yielding more than 8 percent offer this kind of reliability. It’s a buy all the way up to USD16 for those who don’t already own it.

Bird Construction Inc (TSX: BDT, OTC: BIRDF) is up 33.7 for 2012, reflecting the recent 9.1 percent dividend increase and strong results since the O’Connell merger last year. My only problem with the stock now is price, as it’s trading well above my previous buy target of USD12. The dividend increase earns the company a raise in the buy target to USD13.50. But it’s only a buy on dips to that price or lower. Hold.

Brookfield Renewable Energy Partners LP (TSX: BEP-U, OTC: BRPFF) is up about 0.7 percent for the year in US dollar terms, including dividends.

All the news continues to be favorable for this invest-to-grow power generator. The company brought a 102 megawatt wind farm on line in California last month, bringing wind capacity in the state to 274 megawatts, all of which is locked up under lucrative long-term contracts.

My only complaint about the company is management hasn’t yet listed on the New York Stock Exchange (NYSE) as promised. But the stock is safe enough for even the most conservative investors up to USD27.

Canadian Apartment Properties REIT (TSX: CAR-U, OTC: CDPYF) is up about 4.5 percent this year and trades right at my most recent buy target of USD22. The owner of high-end, high-quality apartments is about as low-risk as it gets when it comes to real estate investment trusts, provided it’s purchased at the right time. Buy under USD22.

Cineplex Inc (TSX: CGX, OTC: CPXGF) has risen 18.4 percent so far in 2012, as investors have come to appreciate the company’s ability to generate steadily growing profits even when the movie lineup is inferior. Now that “The Hunger Games” is filling theaters, however, it will get a chance to show what its many-faceted operations can do in good times.

My only problem with the stock is price. It’s trading well above my buy target of USD26, but it’s a great buy on any dip to that price.

Davis + Henderson Income Corp (TSX: DH, OTC: DHIFF) is up about 15.5 percent this year. The company has had little to report since releasing another round of robust results.

The good health of its big bank customers, however, promises to produce more good news when the first quarter numbers come out. The stock remains below my target of USD20 and is suitable for investors of all stripes to that level.

Dundee REIT (TSX: D-U, OTC: DRETF) is up roughly 13.6 year to date and about 6.5 percent since my initial recommendation in the February 2012 issue.

The company’s biggest news since earnings season was a successful CAD231.7 million equity offering, which essentially finances the now-closed purchase of the former Whiterock REIT.

That puts the company in strong position to continue extending its position as Canada’s leading office REIT. Buy up to my raised target of USD36.

EnerCare Inc (TSX: ECI, OTC: CSUWF) is up about 9 percent so far this year, adding to gains of past years.

The big news is the ongoing battle between the company and private capital firm Octavian Advisors LP, which is pushing for management to sell out to the highest bidder. Shareholders have been asked to vote on Octavian’s slate versus that put forward by the company.

My view is long-term income investors are better off voting for EnerCare’s slate rather than Octavian’s.

The latter, for example, pushed hard for the company to sell out in 2010 at a price of just CAD6.45 per share; the stock is trading around CAD10 as of this writing.

Should Octavian win, however, I’ll still recommend holding on in anticipation of a profitable cash out. In the meantime, my buy-under target remains USD10.

IBI Group Inc (TSX: IBG, OTC: IBIBF) is up roughly 16 percent year to date and has been bumping up against my buy target of USD15. The only news since the announcement of strong fourth-quarter earnings was the successful sale of equity for CAD41 million to cut debt.

But it’s yet another positive sign for this solidly growing global architectural and design firm. Buy up to USD15 if you haven’t yet.

Innergex Renewable Energy Inc (TSX: INE, OTC: INGXF) is up 3.9 percent thus far in 2012. More important, however, the company continues to execute on its invest-to-grow strategy, as it brings a number of power generation projects closer to producing revenue.

My only problem with the stock is price. I’ll raise my buy target when there’s a return to dividend growth. Until then the stock is a buy for even the most conservative up to USD10.

Just Energy Group Inc (TSX: JE, NYSE: JE) has been one of the bigger winners in the Canadian Edge Portfolio this year, producing a return of 27.2 percent. That’s likely in part due to the company’s NYSE listing, which has garnered it some attention in the US.

The only significant news from the company since earnings is the announcement that former Massachusetts Governor William Weld has joined its board of directors. This could help expansion by smoothing the political waters.

Growth continues to be robust despite low natural gas and wholesale power prices. My buy target for the stock remains USD16 for those who don’t already own it.

Keyera Corp (TSX: KEY, OTC: KEYUF) is one of my larger losers this year, with a negative return of 13.8 percent. The drop, however, has nothing whatsoever to do with company prospects but mainly is an unwinding of a parabolic rise late last year as momentum investors rushed in.

The good news is the company is back below my buy target of USD42 for the first time in many months. If you’ve been waiting to establish a position, now’s the time.

Note that the company successfully closed an equity offering last month, financing a recent acquisition at a premium price. Buy under USD42.

Northern Property REIT (TSX: NPR-U, OTC: NPRUF) is up 7.5 percent this year. Its best news was a successful CAD66 equity issue and the announcement of a plan to divest assets that run afoul of Canadian tax law for real estate investment trusts.

The unwinding of the staple share–targeted for taxation this summer–is the primary impediment to distribution growth but won’t be later this year.

The REIT still trades above my target of USD30 but would be a very low-risk buy on a dip to that price.

Pembina Pipeline Corp (TSX: PPL, NYSE: PBA) has given investors three big pieces of good news in the past month.

The first was the close of the merger with the former Provident Energy Ltd. Shareholders of the latter should by now have 0.425 shares of Pembina for every share of Provident. The merger is a non-taxable event, and there should be no withholding tax on Pembina shares received.

The second piece of good news was Pembina’s 3.8 percent dividend increase, the third the NYSE listing under the symbol PBA. All of this has pushed Pembina back into the black this year.

Unfortunately, it now trades above my buy target of USD28. Wait on a dip to that level if you haven’t yet gotten in.

RioCan REIT (TSX: REI, OTC: RIOCF) is up 6.5 percent this year, on no real news. The real estate investment trust appears to have become a favorite of safety-seekers willing to pay almost any price for a comfortable stock. That’s not a winning strategy for anyone.

Those who own RioCan should hold. All others should wait on a dip to USD25 or a distribution increase, whichever comes first and not before.

Shaw Communications Inc (TSX: SJR/B, NYSE: SJR) is up roughly 7.2 percent for the year as well as since I initially recommended the stock in the January issue.

The company, which will be the first CE Portfolio pick to announce earnings this month due to a slightly different reporting schedule, continues to expand its business by signing on new customers and improving its range of offerings. That’s a formula for continued earnings and dividend growth in the years ahead.

And it’s good reason for conservative investors that haven’t already done so to buy Shaw up to USD22.

Student Transportation Inc (TSX: STB, NSDQ: STB) has returned about 10 percent this year, likely more a reflection of the attraction of its high yield than the consistent growth of its school bus franchise.

The company won two more contracts in Canada this month, adding 200 vehicles and CAD9 million in annual revenue. The contracts also include automatic fuel cost recovery, eliminating a key risk. And it continued to successfully finance its expansion with low-cost capital, including a recent equity offering that raised CAD8.5 million after underwriting fees.

This is not a utility, and profits are subject to the ability to win contracts as well as control costs. But run properly it’s very much a fee-based business that’s poised for growth, as school systems look for ways to cut costs and outsource functions.

The stock has risen above my buy target of USD7 as of this writing but is a solid buy below that price for those who don’t already own it.

TransForce Inc (TSX: TFI, OTC: TFIFF) has been a big winner thus far in 2012, with a total return of nearly 36 percent. There’s been no significant news for this transportation and logistics franchise since fourth-quarter results came in. But the company’s expansion in the US appears increasingly well-timed and is very likely driving the stock.

This stock is headed a lot higher over the long term as it continues to grow its business. But such a big move in a short time is often at least partly reversed. I’m happy with the returns but advise waiting on a dip to USD16 if you’re looking to get in.

Aggressive Holdings

Acadian Timber Corp (TSX: ADN, OTC: ACAZF) has returned about 14 percent this year despite relatively subpar operating conditions in the timber industry. I don’t expect to see much improvement from the fourth quarter of 2011 when the next round of numbers is announced.

But this is a great property with strong backing from parent Brookfield Asset Management (TSX: BAM/A, NYSE: BAM). That’s why I’m holding the stock and continue to rate it a buy up to USD13 for more aggressive investors who don’t already own it.

Ag Growth International Inc (TSX: AFN, OTC: AGGZF) is up 11.8 percent so far in 2012, in large part thanks to an improved outlook for world grain markets. The company makes grain-handling equipment, demand for which depends on the size of the harvest.

There’s been no dividend increase since late 2010, but another year of sound results will definitely leave room for one. Buy up to USD45 if you haven’t yet.

ARC Resources Ltd (TSX: ARX, OTC: AETUF) is down 15.4 percent this year for one reason: worries about the drop in natural gas prices and its possible impact on profits in 2012.

To date the company has been able to maintain cash flow by ramping up output and focusing on producing gas liquids and light oil, which together accounted for 72 percent of fourth-quarter cash flow).

And it has the low costs, low payout ratio and strong balance sheet to weather this recent crash in gas prices as well.

In short, this looks like an overreaction as investors lump the company in with every other that produces gas.

I’m sticking with ARC, a buy under USD26, though no one should be averaging down in this or any other stock.

Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF) is up 7.3 percent this year. The stock is again back near my buy target, as investors have started to worry about global economic activity.

My view is it’s a solid buy on any dip to USD15.50 or lower for the dividend alone, which management has demonstrably protected against almost any scenario. Remember, though, that I strongly advise loading up on any one stock, no matter how attractive it may look.

Colabor Group Inc (TSX: GCL, OTC: COLFF) is, not surprisingly, one of my worst-performing stocks this year, losing 28 percent in the wake of last month’s dividend cut. The key now is if management can make its reduced targets and follow through on its plan of growing by consolidating the fragmented food and related products distribution sector in Canada.

We’ll find out much in May when first-quarter results are announced. In the meantime I rate the stock a hold.

Crescent Point Energy Corp (TSX: CPG, OTC: CSCTF) is off 3.8 percent despite having no real exposure to the crash in natural gas prices. That makes now an excellent time to pick up shares of this fast-growing light oil producer.

Note that despite the volatility, there’s really been no news since the mid-March earnings announcement. Buy up to USD48 if you haven’t yet.

Extendicare REIT (TSX: EXE-U, OTC: EXETF) is off 2.8 percent this year so far, moving up and then down for no apparent business reason. I’ve highlighted the key issues for the company in Dividend Watch List.

When those are resolved, I’ll either sell this stock or upgrade it to buy. In the meantime Extendicare is a hold.

Newalta Corp (TSX: NAL, OTC: NWLTF) has returned about 19 percent so far in 2012. The trend has been mostly up, as the company has continued to grow key areas of its environmental remediation and recycling franchise across the Canada, though lately gains have been tempered by investor perceptions of the economy.

These concerns have nothing to do with Newaltas continuing growth. But they have given aggressive investors a chance to get in below my buy target of USD15.

Noranda Income Fund (TSX: NIF-U, OTC: NNDIF) is up 5.6 percent this year. The key issue remains the decision of the independent committee on what the company can and should pay as a dividend. And, unfortunately, there’s no way of knowing what that decision will be or when to expect it.

The good news is the stock would still have a solid yield, even if management wins its argument that the current rate is a proper one. Noranda is a buy for speculators up to USD6.

Parkland Fuels Corp (TSX: PKI, OTC: PKIUF) isn’t quite as high as it was. But it’s still up 9.5 percent this year including dividends and sells above my buy target of USD13.

The key is the basic business remains healthy and is likely to remain so despite mild winter temperatures, as it mostly relies on transportation related items. But until the stock sells below USD13 or there’s a dividend increase, those yet to buy should wait on it.

Pengrowth Energy Corp (TSX: PGF, NYSE: PGH) is an April High Yield of the Month and a new Aggressive Holding. Buy up to USD10.

PetroBakken Energy Ltd (TSX: PBN, OTC: PBKEF) is an April High Yield of the Month and a new Aggressive Holding. Buy up to USD18.

Peyto Exploration & Development Corp (TSX: PEY, OTC: PEYUF) has lost 32.9 percent thus far in 2012. This is entirely due to falling natural gas prices, which have convinced at least some investors to throw out anything related to gas.

One group not panicking is Bay Street, which remains solidly bullish at 10 “buys” versus three “holds” and one “sell.” And even the “sell” recommendation has a target price 20 percent above the current level.

We’ve seen Peyto subject to panic before, and management has been able to weather it. I’m not inclined to recommend the stock as a buy until there’s a sign of a bottom.

But I certainly do intend to keep holding it. Note that management maintains it can earn a solid return even at USD1 gas. Hold.

PHX Energy Services Corp (TSX: PHX, OTC: PHXHF) has pretty much lost all the ground it gained following its 50 percent dividend increase in late February and is off 3.1 percent for the year.

That makes now a great time to pick up shares in a fast-growing energy services firm with a superior yield that’s extremely well covered by earnings. Buy up to USD14 if you haven’t yet.

Vermilion Energy Inc (TSX: VET, OTC: VEMTF) is up about 7.2 percent this year including dividends. This is purely a reflection of investors’ comfort level with the oil and gas producer, which has the advantage of selling mostly to European and Asian markets rather than in North America.

The company continues to execute on projects to ramp up output substantially in coming years, even as its dividend remains about as safe as its possible for a producer of energy in such volatile markets. Buy up to USD50 if you haven’t yet.

Mutual Fund Alternatives

Blue Ribbon Income Fund (TSX: RBN-U, OTC: BLUBF) is up 5.9 percent so far this year. I generally prefer buying individual stocks to funds. But this closed-end is about as solid as it gets in the space. Buy up to USD12 if you want a diversified fund with a safe dividend.

EnerVest Diversified Income Trust (TSX: EIT-U, OTC: ENDTF), a slightly more aggressive version of Blue Ribbon Income Fund, is up 9.2 percent this year. The fund still trades at a discount of more than 8 percent to net asset value, which may entice some. But investors should note the higher yield does come with more leverage.

I’m comfortable with that, given management’s solid long-term record. But buy up to USD14 if you understand this risk behind the yield of more than 9 percent.

First Asset Pipes & Power Income Fund (TSX: EWP-U, OTC: FAPPF) is off about 1.2 percent for the year as well as since I added it to the Portfolio in the January issue.

The problem isn’t the fund’s assets, which are about the safest stocks in Canada. Rather, it’s the fact that pipeline and power stocks were very hot last year for safety and many have taken a breather in 2012 so far. That won’t last forever.

Safety first investors can buy this fund, which has gone from selling at a premium to net asset value to a discount of 4 percent, up to USD8.

Stock Talk

Comments Guidelines

Add New Comments

You must be logged in to post to Stock Talk OR create an account