For the year ending December 31st 2011, investing was a mixed bag. International stocks were a loss; over -14.4% (using Vanguard’s VEU ETF) and European stocks alone were down nearly -12%. The U.S. markets performed much better. U.S. investors, especially dividend investors, saw substantial increases in the equity component of their portfolio. The return of the S&P 500 was relatively flat, but the DOW returned a positive 5.5%.
Looking at Canada, The TSX was down over -8.7% for 2011. However many Canadian dividend paying stocks fared much better (assuming you could have hand-picked the winners). The Telecoms and Pipelines did very well in 2011. While other sectors, such as the Life Insurance companies, amassed enormous amounts of debt, and lost significant value in their market capitalization. Canadian bond funds and ETFs also helped investors throughout 2011, by cushioning the volatility and delivering steady monthly income.
So what’s the Ninja looking at for 2012? Here are five of my favourite Canadian companies and a bond ETF, to start off 2012. Part-1 covers three of these companies.
Note: Unless noted, the following companies or ETF’s trade on the TSX (Toronto Stock Exchange).
Husky Energy (HSE)
I first recommended Husky Energy back in December 2010, in My Stock Picks for 2011. At that time Husky was trading over $26 share. If you had of bought husky then, your stock would still be down a bit, but you would have reaped a nice 5% dividend yield over the year. It’s been a more difficult ride for long -term investors of Husky who saw the share price collapse from a high of $52 in April 2008. Under its new CEO Asim Ghosh who has a stellar background, Husky appears to be doing well, and may be a solid turn-around stock. Husky currently trades at $24.36 per share, with a dividend yield of 4.9%, a dividend payout ratio of 51.5%, and a debt-to-equity ratio of 23.2. The fundamentals for Husky continue to remain solid.
I’ve always liked the fact that Husky is a diversified oil and gas producer, with different energy interests throughout Canada, and also has production interests in Asia (Liwan Gas Project). I believe this gives Husky a competitive advantage over a company like Encana (ECA), which is solely focussed on natural gas production. In my previous post on the Dividend Growth Index, I discussed how Husky has been reinvesting their profits and working capital into their infrastructure, under their 2012 Capital Expenditure Program. Husky will start to receive revenue from these expenditures in 2013 and 2014. A company which reinvests into their own business, as opposed to straight share buy-backs or only acquisitions (purchasing other companies), is in my opinion a company investing in its future.
Telus Communications (T-TO, TU-N)
I covered The Canadian Telecoms for Dividend Stocks Online, back in September 2011. During the market decline that occurred last August, Canadian telecoms were the clear winners and harbour of safety. However like utilities, the telecoms tend to have higher debt loads along with higher dividend payout ratios. The high debt isn’t surprising when you consider the cost of the infrastructure these telecoms need to build, upgrade, and maintain. Surprisingly the fears of small cellular competitors such as WIND and Mobilicity in 2011, hasn’t had as large an impact on the bottom line of the big telecoms, as analysts might have expected. A large part of that is due to tightly controlled federal regulations over the industry. However a conservative government review of foreign ownership in this sector during 2012, could change the playing field.
Telus Communications is Canada’s third largest telecom with a market capitalization of $18.2 billion. Although I own Rogers Communications (RCI) and Shaw Communications (SJR.B), I consider Telus (T) a much better company in terms of fundamentals. Telus has lower debt than its competitors, with a debt to equity ratio of 88.9 (that would be high in other industries). It also has a lower dividend payout ratio at 62.7%, with a nice dividend yield of 4.10%.
Telus is currently trading at $56.34 per share, and is in a long-term uptrend pattern since, February 2010, when it was trading around $32 per share. I normally do not like to purchase companies trading at 52 week highs. As Benjamin Graham so eloquently points out, the “higher the price you pay, the lower your return will be. “ Even at these price levels however, I consider Telus a solid investment for the long-term investor.
Corby Distilleries (CDL.A)
Corby Distilleries (CDL.A) established in 1859, has a long history and tradition in the Canadian Liquor business. Corby was also one of My Stock Picks for 2011, and it is again a stock pick for 2012. I first came across this company reading about it in one of Derek Foster’s books. I am still wondering why I haven’t purchased any shares in this company.
If you visit the Corby website, you will recognize many of the brands that Corby produces and distributes. Although Corby reported weaker revenue consistently throughout 2011, profits actually rose. The company has virtually no debt (actually pretty close to zero). Corby currently has a higher dividend payout ratio however over 90%, since it had lower than expected earnings, and just recently paid out a special dividend. The dividend yield is currently 3.8%. Corby currently trades at $15.95 per share, not far off from where I recommended it last year. However some may consider the PE Ratio of 24 to be rather high, but then Corby has always had a high PE ratio since I’ve followed it.
The real icing on the cake is rather than share buy backs, Corby uses its surplus cash and returns its profits back to shareholders, as a special dividend. This seems to be a long standing tradition with the company. Recently, Corby paid $1.85 per share payable on January 3, 2012 – a cash distribution of over $52.7 million dollars. When you count the regular annual dividend of $0.60 per share with the special dividend of $1.85 per share, your total return on dividend yield for 2011 would have been over 15%! And Corby also recently raised their annual dividend 7% from .14 cents per share to .15 cents per share. This is definitely a company I would like to add to my core holdings in 2012. However the high dividend payout and PE ratios need to be watched carefully, even with the lack of debt.
To be continued…
Readers: What’s your take? Do you like Husky, Telus, or Corby?
I do not own the securities mentioned. I would like to add HSE and CDL.A to my positions in 2012.
The Dividend Ninja is not a professional financial advisor or an investment dealer. This website does not offer professional or financial advice, is not a buy recommendation, and is intended to provide general information only. The Dividend Ninja is not responsible for the investment decisions you make. You should consult with a professional financial advisor before making any investment decisions. Be prudent and cautious. Do your own research, and only invest in what you understand!
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