Three Canadian stocks for U.S. income investors
This U.S. advisory tells income investors to go international in search of stocks with strong yields and heads north for three Canadian buys.
The markets are limping back into positive territory.
So are the prices of a number of commodities.
No one is naive enough to think that this spells the end of trouble, especially with all those debt collectors pounding on Europe’s door.
But commodities and Canadian prosperity are never far apart. For that matter, Canadian commodities and American prosperity can be pretty closely linked as well.
That’s the opinion of one prominent U.S. advisory, which tells its readers to go abroad to add weight and diversity to their portfolios.
International stocks offer a “fertile source” of potential growth and price appreciation, says The Complete Investor. But above all they can “juice up your income.”
Of course American investors don’t have to go too far abroad, in this advisory’s opinion. They can find three strong income stocks by heading due north to Canada.
A strong currency
International investing is particularly alluring when you invest in countries with strong currencies, says Ms. Genia Turanova, writing for the advisory. Like Canada.
“A strong currency is strong for a reason,” she says, “which today generally means a country well endowed with natural resources.”
Of course when the market went into a tailspin, the Canadian dollar went with it. But the loonie is pulling itself back up rather quickly.
It should continue to do so, in the opinion of most informed observers. The U.S. dollar has gained temporary strength from a flight from shaky euros, but the greenback still faces some stiff challenges.
The author’s point remains unaltered. U.S. investors benefit when the dividends they receive are backed by a robust currency that is in turn backed by abundant natural resources.
Still, the first Canadian stock on this list does not pull anything out of the ground, at least not directly.
A favourite income stock
It is the Bank of Montreal (TSX/NYSE-BMO), which is one of this advisory’s favourite income stocks. This is the second month in a row it has singled this bank out for a strong recommendation (see Daily Buy-Sell Adviser, April 15).
At the time, it praised BMO for its success in reinvigorating its retail banking and its sparkling quarterly results. The shares were trading at $63 and yielding 4.4 per cent.
Following the past wild week in the markets, the shares sit at $61.92 and yield 4.5 per cent on the $2.80 dividend.
The other two Canadian picks are in the commodity game, energy to be specific.
Headed for success
The first is TransCanada Corp. (TSX/NYSE-TRP), which Ms. Turanova describes to her readers as “the largest North American natural gas pipeline company and Canada’s biggest private power company.”
Despite the “difficult” natural gas market, TransCanada has “maintained stable cash flow and a more than 40 year tradition of dividends,” says the author. “Its competitive position should strengthen as some growth projects move ahead.”
Pipelines account for 60 per cent of TransCanada’s cash flow, power operations and natural gas storage for the rest. But if the company’s $22 billion capital program bears fruit, she says, pipelines will generate 75 per cent of cash flow in a few years.
The capital program “seems headed for success,” she adds. The first phase of the 3,461-kilometre Keystone crude oil pipeline is due to open by the end of June. The second phase, which will reach Oklahoma, should be up and running early next year. Ultimately, it will reach the Gulf Coast.
This will give “Canadian producers their first major access to U.S. refineries on the Gulf of Mexico, which can offer premium prices for oil sands crude.”
The shares bounced from an April high of $38 to a May low of $30 and are back to $34.99. They yield 4.7 per cent on the $1.60 dividend.
A brisk yield
One possible beneficiary of the Keystone pipeline, writes Ms. Turnova, is Canadian Oil Sands Trust (TSX-COS.UN; OTC-COSWF).
Yet even without this pipeline development, “we remain buyers of this company, which is the largest pure play on Canada’s oil sands,” she states.
With the biggest single stake in the Syncrude project, at about 37 per cent, Canadian Oil Sands has productive capacity of 350,000 barrels per day of light, high-quality crude oil.
After cutting back the distribution when oil prices fell from their 2008 highs, the trust has been building it back up. Following the release of its first-quarter results a month ago, it was increased to $0.50 for the second quarter, or $2.00 annually.
The yield is a brisk 7.4 per cent and the units are trading at $27.00 (up a dollar so far today).
Ms. Turanova does take note of the corporate conversion that will come in the face of the trust tax, but expects “dividends to remain at levels comparable to today’s.”
Go north, this advisory tells investors. Among its many natural resources, Canada is growing a rich crop of income stocks these days.
|
E-mail this article
Printer-Friendly
