Dollars, dividends and a vote for Canadian income stocks
U.S. investors should seek out Canadian dividends, says an American expert who likes two Canadian income stocks — and one U.S. pharmaceutical stock.
Even when the Canadian dollar goes down, it’s still up.
It lost some of its value in the market slowdown — most pointedly, with the slackening of commodity prices.
But it remains several cents above the U.S. dollar.
And that’s a clear advantage for income investors in the U.S., points out one American expert who always has an eye to the north.
Buy Canadian dividend paying stocks, Mr. Roger S. Conrad tells the readers of Personal Finance.
Mr. Conrad is also the editor of an online advisory called Canadian Edge, so he knows investments on this side of the border.
He has two favourite Canadian stocks in mind. One was an income trust for many years, and the other still is.
But he’s not prejudiced. He also has a recommendation for a U.S. pharmaceutical stock, because whatever the greenback may be doing, a surging stock with a high yield is always welcome.
An impressive feat
Mr. Conrad specifically recommends stocks that are priced in, and pay dividends in Canadian dollars. The future remains murky for the U.S. greenback, and American investors should act accordingly.
When the loonie adds value, it brings “a corresponding increase in the U.S. dollar value of their dividends and share prices.” And an influx of U.S. investors brings a corresponding increase in value for Canadian shareholders.
The two recommended Canadian stocks are not newcomers to this advisory’s Income Portfolio. Mr. Conrad added one of them to the portfolio seven years ago and the other six years ago.
The seven-year stock is Vermilion Energy (TSX-VET; OTC-VEMTF). Vermilion produced roughly 20,000 barrels of oil a day last year and 73.1 million cubic feet of natural gas in Canada, Australia and Europe.
Its output rose 13.4 per cent in the first quarter of 2011, “an impressive feat during a period of devastating floods in Australia,” says Mr. Conrad. One of the company’s key properties is the Wandoo Platform near Perth.
Funds from operations per share — “still the key measure for the income-trust-turned corporation’s profitability” — rose 2.7 per cent, pushing the payout ratio down to a very comfortable 50 per cent.
Mr. Conrad makes Vermilion a buy up to US$50. In the short time since he went to press, it has pushed up past that level on the Over the Counter board in New York, to $51.86. In Toronto it trades at $50.42, yielding 4.5 per cent on its $2.28 dividend.
A clear sign
The six-year member of this Income Portfolio is Canada’s foremost apartment landlord, Canadian Apartment Properties REIT (TSX-CAR.UN; OTC-CDPYF).
In the first quarter, CAP REIT had solid results, notes Mr. Conrad, building on acquisitions and a rise in both the occupancy rate (to 98.3 per cent) and rents, which rose by 3.7 per cent.
The trust enjoyed 12.4 per cent growth in net funds from operations, “the primary measure of a Canadian real estate trust’s profitability.”
Profit margins are also up and the payout ratio dipped from 93 per cent to 92.6 per cent.
“The first and fourth quarters of the year are typically weaker reporting periods, as REITs cover heating costs,” explains the analyst. “Improved results are a clear sign recent expansion is paying off.”
Buy this trust up to US$22, he says. It’s at $19.79. In Toronto, the price is $19.25 and the yield is 5.6 per cent on the $1.08 distribution.
Surged in spring
The chief appeal of Bristol-Myers Squibb (NYSE-BMY) is quite simply that it is doing so well, says Mr. Conrad.
Its multiyear strategy of developing new biologic drugs is paying off nicely. First-quarter profit jumped 33 per cent over last year. What’s more, Bristol Myers earns 35 per cent of its revenue outside the U.S., the surest sign of health for American companies these days.
The company has new treatments for hepatitis B, rheumatoid arthritis and leukemia. In March, it gained U.S. approval for “the first drug that’s clinically proven to increase patients’ likelihood of surviving melanoma.”
It has also signed a deal with China that should increase the pace of treatments there.
“The firm faced its share of skeptics since we added it to the Income Portfolio,” comments Mr. Conrad. “But the stock surged this spring, and we expect even more.”
The stock is a buy up to $30, he adds. Although the shares dipped during the market slowdown, it has been rising steadily and trades at $28.08 with a yield of 4.7 per cent on a dividend of $1.32.
The loonie has moved back up today, which is good news for U.S. investors in Canadian income stocks. But in a world of growing uncertainty, investors everywhere should feel right at home with dividends.
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