Ninja’s 2012 Canadian Stock Picks – Part 1

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)

husky-night_station

courtesy of www.myhusky.ca

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.

Corby Distilleries

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?

Disclaimer

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!

Subscribe

If you enjoy receiving the Dividend Ninja in your mailbox, don’t forget to also subscribe to the Dividend Ninja Weekly (and if you don’t like it – subscribe anyway). Thanks for reading!

19 Responses to “Ninja’s 2012 Canadian Stock Picks – Part 1”

  1. DividendNinja,

    This was a nice analysis of all 3 companies. I also like Telus although I don’t own it and feel it is priced too high at the moment.

    I remember Corby Distilleries from the last Derek Foster book but I am looking at LIQ.TO for my TFSA account (close to 7% yield). Really impressed with their fundamentals of no debt and this is a recession proof industry.

    Reply to this comment
    • The Dividend Ninja

      Jan 12. 2012

      Steve

      Thanx for dropping by! Yes Telus is rich in price, but it still has great fundamentals. It would be a great stock to hold forever and top-up on the dips.

      Corby is also a great company, and the special dividends are a real bonus. I also own LIQ, and it is a perpetual dividend machine – but high yields have extra risk ;) I would like to pick up Corby and Husky this year.

      Cheers!

      Reply to this comment
      • Sara

        Apr 13. 2014

        Steve,
        What do you think of LIQ today (April 2014)? Still worth buying??

        Reply to this comment
  2. 101 Centavos

    Jan 13. 2012

    I like Corby! Then again, I like any alcohol stock that pays a nice dividend. Can’t hardly go broke selling booze.

    I’ll have to find out if they’re eligible for re-investment in my 401k plan. With foreign securities the rules in the plan are a little arbitrary. I got a little burned with LIQ. I found out after the fact that dividends couldn’t be re-invested into additional shares.

    Reply to this comment
    • The Dividend Ninja

      Jan 13. 2012

      101 Centavos Thanx for posting! Well any company can go broke if it doesn’t have good fundamentals. LIQ is pretty solid, but Corby has a good balance sheet as well. And you gotta like the special dividend paid out every 2 years or so.

      I’m not familiar with 401K rules as I’m Canadian, but I’m wondering if not being able to DRIP dividends is more to do with your broker than the tax rules. Just sayin ;)

      Cheers
      The Dividend Ninja

      Reply to this comment
  3. My Own Advisor

    Jan 13. 2012

    Cool post, I like these picks, and good reasoning.

    I already own HSE, so I won’t be buying more. I think this guy is poised to take off in another couple of years. They have some major, major projects coming online in a couple of years.

    Even if the stock price doesn’t take off, fine by me. Good company, good yield and I get paid :)

    Telus, love to own it but WAY too pricy for me at this time. Will be saving up for it.

    Corby, now here is a guy I like. Liquor is not a sin, it’s legal and fun! Kidding aside, I want some more consumer discretionary companies in my portfolio. I’m mostly banks, pipelines and energy now, which is the base for my dividend portfolio but now it’s time to branch out, a little bit anyhow.

    Looking forward to the continuation….

    Cheers,
    Mark

    Reply to this comment
    • The Dividend Ninja

      Jan 15. 2012

      MOA I think Corby is solid, and you have to like the special dividend that seems to get paid out every 2 few years or so. :)

      I like Husky at these price levels, and I think once 2013 and 2014 rolls around, investors will see the reward for their patience. Check out the background for Asim Ghosh, he has an amazing and stellar corporate background – looks like he’s taken on Husky as a turn around.

      I agree Telus is expensive at these price levels but the company has the best fundamentals of the Canadian Telecoms, and is doing well :) I plan to DRIP Telus this year, dollar cost average my position in, and then once I have enough shares…

      Cheers
      The Dividend Ninja

      Reply to this comment
  4. ThePaperboy

    Jan 17. 2012

    This is the first time I heard of Corby and it definitely piqued my interest. The only liquor stock that I was considering was LIQ but you gave me another option to look at.

    Can’t wait to see what else you have an eye on this year.

    Reply to this comment
    • The Dividend Ninja

      Jan 17. 2012

      ThePaperBoy I also own LIQ, but I think Corby is a better company. Interestingly, some of the private liquor stores here in Vancouver are owned by LIQ.

      Cheers

      Reply to this comment
  5. youngdiv

    Feb 07. 2012

    Hey very useful stuff here. I have fired my financial planner because of sites like this and the passive income earner. Feels good to know these strategies. I like HSE, but how long can they go paying this high of a dividend?

    Reply to this comment
    • The Dividend Ninja

      Feb 07. 2012

      Hey youngdiv congratulations on your DIY (Do It Yourself) investing journey! I like Passive Income Earner, and myownadvisor.ca is another blog I follow regularly as well.

      I hear you on Husky, and anytime the dividend yield gets over 5.5% I get concerned – but not at 4.8%. With a dividend payout ratio around 50%, I don’t see this dividend at risk of being cut.

      Apperantly Husky did cut the dividend already back in 2008. I doubt they are going to cut it again this soon at these levels. Part of the reason is the low share price. The dividend has increased because of the falling share price, but once the share price rises again, the dividend will decrease.

      Cheers

      Reply to this comment

Trackbacks/Pingbacks

  1. - My Own Advisor - January 12th, 2012

    [...] Dividend Ninja listed his Canadian stock winners for 2012.   Check out what he picked in Part 1 of this series.  I own one of his selections [...]

  2. Friday Links – Canadian Finance Blog - January 13th, 2012

    [...] week the Dividend Ninja gave out his advice on investments in his post, Ninja’s 2012 Canadian Stock Picks – Part 1. I can’t wait for the next part. VN:F [1.9.13_1145]please wait…Rating: 0.0/5 (0 votes [...]

  3. The Dividend Ninja » Ninja’s 2012 Canadian Stock Picks – Part 2 - January 17th, 2012

    [...] week I covered the first half of my 2012 Canadian Stock Picks . I covered three of my favourite companies I’ve had on my watch list for quite awhile, Husky [...]

  4. The Dividend Ninja » The Weekly Lineup: Mid March Shopping Edition - March 17th, 2012

    [...] as one of my stock picks, chose it for the Dividend Growth Index, and again recommended it in my 2012 Stock Picks. Husky is a company I want to have in my portfolio as a core holding with its 4.6% dividend yield. [...]

  5. The Dividend Ninja » Recent Buy: Husky Energy (HSE) - March 22nd, 2012

    [...] of my 2011 Stock Picks, I chose it for the Dividend Growth Index, and again recommended it in my 2012 Stock Picks. Now I’m an owner in this company, and plan to hold this one for the long term. I’ll be buying [...]

Comments are closed on this blog