Ninja’s 2012 Canadian Stock Picks – Part 2

Last 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 Energy (HSE-T), Telus Communications (T-T and TU-N), and Corby Distilleries (CDL.A-T). This week I continue with my other picks, all in the financial sector.

Unless noted, the following companies trade on the TSX (Toronto Stock Exchange).

AGF Management (AGF.B)

agf-family-of-funds

courtesy of www.agf.com

If you invest in Canadian mutual funds, then you will be quite familiar with AGF – as you likely own some of their products. Instead of paying trailer fees, commissions, and management expense ratios to hold mediocre mutual funds, you can do much better owning the stock directly.  AGF is a $1.6 billion dollar company, which pays a very generous dividend yield of 6.5%.  However it does have a high dividend payout ratio of 82%. AGF also has a presence in the Asian and European markets.

Compared to other financials such as the Life Insurance Companies, AGF has much less debt, with a debt to equity ratio f only 24.30. Although a much smaller capitalization company, AGF is trading at a much better price point than the Canadian banks.  With RRSP season approaching, AGF may be a good investment as investors will start purchasing mutual funds, and increasing equity into the company’s cash flow and bottom line. AGF.B currently trades at $16.69 per share – not at the bottom, but not at the top either.

AGF is a stock I like to play on the swings, though it will also make a great long-term holding with its generous dividend yield. I may even consider that looking forward in 2012. I had purchased shares of AGF.B back in August 2010 when they were trading around $14.60 per share, then sold in the spring of 2011 for around $17.50 (thought it climbed over $19). It was also a great way to get back at an actively managed mutual fund company that hosed me for years!

Update, May 4th, 2012: AGF Management currently has an increasing dividend yield to 8.00%, a high dividend payout ratio of 90.7%, and a declining share price. Caution is advised on purchasing this stock. Also see my recent post:
IGM Financial Versus CIX and AGF.

Power Corp. of Canada (POW)
Power Financial Corp. (PWF)

Power Corp. of Canada (POW) is essentially the holding company for Power Financial (PWF), and as a rough estimate owns about 65% of Power Financial Corp. (PWF). These are no financial lightweights, with PWF at $18.2 billion dollars market capitalization, and POW the holding company at $9.2 billion. Both companies pretty well own the same assets, so it really depends on yield, share price, and whether you would prefer to hold the parent company. Although I just happen to like the sound of “POW”, I would be more inclined to invest in PWF with its slightly higher yield and much higher market capitalization.

Both POW and PWF are indeed financial powerhouses. Because of the financial and geographic diversification of their holdings, I believe POW and PWF are better investments than holding the Canadian life insurance companies directly (even though they collectively own GWO and IGM). POW would indirectly hold the same assets through its ownership of PWF.

Unlike the other Canadian lifecos (life insurance companies), which are struggling with high debt and low profit margins, Power Financial (PWF) is a profitable powerhouse. It is diversified across the financial landscape and internationally as well. Its financial subsidiaries include well known insurance giants Great West Life (GWO), London Life, IGM Financial etc.  Power Financial (PWF) also owns big brand name Canadian mutual fund companies, such as Investors Group and Mackenzie Financial.  Just like AGF Management, it is much more profitable to hold the mutual fund company instead of mutual funds it owns!

PWF however does have a significant presence in Europe and the U.S. through its subsidiaries like Pargesa Holding SA of Switzerland. While investors are running for cover whenever they hear the word “Europe” or the “U.S.”, I believe this international exposure may give PWF its strength. Different areas of the world will have different economic conditions, rates of recovery and growth, and a company like PWF can take advantage of that geographic diversification.

PWF is currently trading at $26.14 per share, with a debt to equity ratio of 42.77, a dividend payout ratio of 61.6%. The dividend yield is currently 5.4%.

POW is currently trading at $24.70 per share, with a debt to equity ratio of 28.59, a dividend payout ratio of 53.4%. The dividend yield is currently 4.8%.

The fundamentals for POW are better than PWF, but you get the higher dividend yield and higher market cap with PWF. While both PWF and POW are not trading at the bottom, I think these companies represent good value for investors at these price levels.  Both these companies have done well in the recovery that followed the Financial Crisis in 2009. For more information, check out the in depth analysis of these companies by the Dividend Guy, on his Canadian Dividend Stock website: PWF and POW.

Laurentian Bank of Canada (LB)

laurentian-bankWhen people talk about the Canadian Banks, they usually refer to the big 5 such as RY, BMO, CM, TD, and NA. Laurentian Bank of Canada is the smaller player on the scene, with only $1.1 billion dollars in assets, but it has also been a top performer over the last 6 months in capital appreciation.

Last June, Laurentian Bank was hit hard with a less than stellar earnings report and thin margins. LB was left as the underdog, and investors make it quite clear they were more inclined to invest in the other smaller player, Canadian Western Bank. Then at the beginning of August the big Euro fear spread through the markets, and investors again pulled their money out of the Canadian banks. In reality the debt concerns in Europe had little to do with the day to day operations of Laurentian Bank, but the share price for LB again lost value.

To make a long story short, you could have picked up shares in Laurentian Bank (LB) for $39 per share on August 7th, 2011. Since then LB has currently climbed to over $47 per share, and it looks like it will continue to climb further. Back in August I was seriously considering investing in Laurentian, but really didn’t have the funds available without using the line of credit – so I decided not to buy at the time. LB is currently priced at $47.30 per share, has a dividend payout ratio of 37.5%, and a dividend yield of 3.8%.

 To be continued…
Yes there is a Part-3 rumoured to be in the works 😉

Readers:  What’s your take? Do you like AGF.B, POW, PWF or LB? What Canadian financials do you like for 2012?

Disclaimer

I currently do not own the securities mentioned, but have owned AGF.B in the recent past. 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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19 Responses to “Ninja’s 2012 Canadian Stock Picks – Part 2”

  1. The Dividend Ninja

    Jan 18. 2012

    101 Centavos Not sure why you can’t DRIP foreign (Canadian) stocks? Is this common for U.S. investors?

    Cheers

    Reply to this comment
    • 101 Centavos

      Jan 19. 2012

      I’m not sure. I know for sure that I have check beforehand with my 401K plan administrators to see if it is.
      Petrobakken is one that is eligible, although I’m holding it as PBKEF on the pinks.
      I’m positive that if the stock trades on the major boards like NYSE, Amex and Nasdaq, there won’t be an issue.

      Reply to this comment
  2. Juan

    Jan 18. 2012

    Some of those yield rates are pretty juicy. I think that I will have to check out AGF a little more in depth.

    Reply to this comment
  3. Rock the Casbah

    Jan 18. 2012

    Thanx Ninja for this article and Part 1. As an American investor, I’m interested in making more investments from companies “North of the Border”. This comes partly from the investment need to diversify my portfolio w/ international exposure and also from my personal interest in your country. Just a couple observations/questions and any input (as usual) is appreciated:

    I know some Canadian companies are listed on the American stock exchanges (as you’ve pointed out). So far at least, all my Canadian investments are among these companies so it’s been as easy for me to transact them as any American stock. But what if an American investor is interested in Canadian stocks ONLY listed on the TSX? Is it difficult for an American investor to transact these stocks? Obviously, I need to research that question w/ my on-line brokerage but I was wondering if you had any input on that.

    I’ve done very well with my Canadian stocks and I think there are some good Canadian investment opportunities for us Yanks down here that we often overlook. However, I am somewhat disappointed by the relative lack of diversity w/ Canadian dividend stocks (at least those that match my criteria). I usually look for a lower yield threshold of close to 3% and also trade on the American exchanges. Although there are a fair number of stocks, most of them are in the 3 sectors of Finance, Telecomm and Energy. American stocks seem to offer much greater diversity. I realize that’s to be expected as we’re a country w/ a larger economy. Also, that might stem from the fact that Canada’s economy is more commodities based than America’s.

    The last point is just an observation and NOT meant to be a slight against Canada. In fact, I have an interest and respect for your country. Actually, I figured if I’d ever want to apply for dual citizenship in Canada, I could use you as a reference. I figured if I mentioned the Ninja, that would expedite my citizenship application for sure. LOL.

    Cheers.

    Reply to this comment
  4. youngandthrifty

    Jan 18. 2012

    Hey TDN,

    I find it odd that the AGF picture has a family with a tiger in the living room? LOL what’s that supposed to signify? That you can tame a tiger if you go with AGF?

    So did you end up buying these or do you own these stocks?

    Those are some great picks you picked 🙂 I wouldn’t expect anything less from the ninja!

    Reply to this comment
    • My Own Advisor

      Jan 19. 2012

      Hey Y&T,

      The tiger is part of the AGF logo/brand.

      Not that I really like it, although the one in the picture with the family seems nice and friendly enough 🙂

      Reply to this comment
    • The Dividend Ninja

      Jan 19. 2012

      Hey Y&T it’s part of their logo, they have used the Tiger in their logo for decades – check it out 😉

      I was going to photoshop into the pic “…I’m eating their profits with fees”, but I figured the risk was a little too great LOL 🙂

      I have owned AGF, but now wishing I just kept it and topped up, very nice yield. It is a nice stock to trade though, as it does have regular highs and lows.

      Cheers!
      btw who designed your new site? It looks awesome 🙂

      Reply to this comment
  5. My Own Advisor

    Jan 19. 2012

    Nice stocks 🙂

    Don’t own AGF, but curious about it, since the yield is crazy good right now. High DPR concerns me.

    I own PWF in my TFSA. It DRIPs there 🙂 That might answer 101s question, although I pretty sure you could DRIP CDN stocks like PWF in U.S. accounts, based on what the Board of Directors has approved or not regarding the DRIP.

    LB is a nice pick. Small bank, more nible. I would expect they will get bought out at some point, probably to a TD or BNS is my guess. I could be totally wrong here.

    In 2012, I like BNS and BMO for CDN financials. I think SLF will rebound as well and MFC will probably be a buy for me if it continues to stay around $12. I would like to have $1K to make that transaction worthwhile.

    Reply to this comment
    • The Dividend Ninja

      Jan 19. 2012

      MOA I think you would enjoy holding AGF as one of your financials, it has a juicy yield, and is doing far better than the lifecos. I think SLF is good value right now, but will take at least a year or two recover – value investing I suppose 😉 But that’s another post I’m writing LOL.

      I love PWF and would like to get my hands on it. What do you think PWF or POW??

      If only I had more money, I would buy all of these companies 🙂

      Cheers
      Dividend Ninja

      Reply to this comment
  6. Time for my 2 cents 🙂

    I have had AGF.B on my watch list for a long time but I have not pulled the trigger. The dividends has been nice and I would really like to look at their growth history for their dividends.

    I own PWF just like MOA and it DRIPs in my TFSA. Between PWF and POW … I opted for PWF mostly because it’s a little closer to IGM and GWO. It’s the ownership structure that is interesting between all those companies (POW, PWF, GWO and IGM).

    From a bank perspective, I am a little more bullish on National Bank right now. I am up 13% since November 🙂 They have been increasing their dividends at a good pace but so has LB here.

    From your part 1: Telus I already have but in small amount – I think they have a solid foothold on the west coast and chipping at Shaw’s business. Husky has not been high on my list mostly because their dividend payment isn’t consistent in growth. CDL.A looks interesting but it’s a small company compared to all my other investments.

    It’s AGF.B that I keep on the fence and never pull the trigger …

    Reply to this comment
    • The Dividend Ninja

      Jan 19. 2012

      PIE Great comment, thanx for the feedback! I always value your input. I know your big on the 10-10 rule, so you like to go for larger companies.

      Yah I’m really interested in PWF, AGF, CDL.A, and HSE. What I really need to do is to find an extra 25K, so I can go on a dividend stock shopping spree 🙂

      Cheers!

      Reply to this comment
  7. I have been proud to own LB for over 5 years now and I am glad I do. Consistent returns out of all the bank stocks I own.

    I was worried about its low level of assets for acquisitions but it still does really well.

    Reply to this comment
    • The Dividend Ninja

      Jan 20. 2012

      Hi Steve I think LB is pretty solid, even though it’s one of the smaller banks. Remember it’s still a class one chartered bank, so it follows and is governed by the same banking regulations as the big boys. In Canada that’s a good thing 🙂

      As MOA points out, a takeover would be more likely, but hey who knows, LB is doing pretty well since it missed earnings last July.

      Cheers
      The Dividend Ninja

      Reply to this comment

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