Time for Canadian investors to get buying
As the market oscillates back and forth, Canadian investors should be buying up income trusts and dividend paying stocks, says this analyst.
Oscillating is the motion that a pendulum makes, or a spring mechanism, or a slinky toy.
That’s what the stock market is doing these days, says one Canadian expert — and while it’s oscillating, investors should not be vacillating.
Mr. Michael Smedley thinks it’s time to “buy choice securities.” And by that, this seasoned fund manager means select income trusts and dividend paying stocks.
In his column in Investor's Digest of Canada, Mr. Smedley admits that we’re still waiting for the final resolution of the financial ills that have plagued the markets for almost three years now.
But that is no reason not to take advantage of good opportunities. He finds them in a number of places, but particularly in “de-trusting” income trusts that will be converting before the January tax deadline.
He has no less than 11 recommendations, so let’s get started.
The best of class
High dividends should be part of an investor’s strategy today, in this fund manager’s opinion. And that includes “choice income trusts in the pre-2011 transition year — the Year of Taxability.”
His top choice is Baytex Income Trust (TSX-BTE.UN), “the best of class in energy.” Baytex is trading at $35.95 and yielding a solid 6 per cent on its $2.16 distribution.
Penn West Energy Trust (TSX-PWT.UN0 is a “massive land owner” whose prospects are perking up, says Mr. Smedley. That’s partly due to the fact that it is concentrating on billions of barrels of recoverable oil in the Cardium substratum in Alberta. Penn West trades at $21.77 and yields over 8 per cent on its distribution of $1.80.
The author reminds his readers that Canadian trusts, and especially energy trusts, remain popular with American investors, which certainly works to the advantage of Canadian unitholders.
Appreciating helicopters
Staying on the resource front, Mr. Smedley likes heavy-duty industrial and mining equipment distributor Wajax Income Fund (TSX-WJX.UN). It trades at $28.10 and yields 6.4 per cent on its $1.80 distribution.
He also tells us that he recently discovered the very interesting fact that used helicopters actually appreciate in value. That gave him added respect for Canadian Helicopters Income Fund (TSX-CHL.UN), which supplies choppers for the petroleum and forest industries. It is trading at $12.15 and yielding a brisk 8.8 per cent on a distribution of $1.10.
Not all of the author’s recommended trusts deal with resources. He has two more trusts (and one stock) in very different businesses.
One is Data Group Income Fund (TSX-DGI.UN), which handles document design and supply for large clients, including three of the big banks. Its units are at $9.10 and it is yielding a rich 12.7 per cent on its distribution of $1.15.
The other is Cineplex Galaxy Income Fund (TSX-CGX.UN), due to benefit from some blockbuster releases and the popularity of 3Ds, says the author. Trading at $20.64, it yields 6 per cent on its $1.26 distribution.
Still looking at the big screen, he also likes Imax Corp. (TSX-IMX), which is expanding in Asia. The shares stand at $18.27. But unlike the analyst’s trust selections, this stock pays no dividend.
Mr. Smedley now shifts his focus to resources stocks, and each of his choices here does pay a dividend.
The salt mines
While the market is unstable, or volatile, or oscillating (pick your word), some are acting, says the author. “Putting a firm foot forward is the Chinese government, relentlessly buying up the sub-surface of the planet.”
This has prompted “forward thinkers” like Kinross Gold (TSX-K) to scoop up development lands in the sparsely mined Yukon. It has agreed to acquire Underworld Resources, which has several promising properties in the good old Klondike.
Kinross trades at $17.94. It yields 0.5 per cent on its $0.10 dividend.
Next the author travels to the tranquil town of Goderich, Ontario on the shores of Lake Huron. Here lies the world’s biggest salt mine, which is run by Compass Minerals International Inc. (NYSE-CMP).
The salt from the mine appears on North American roads each winter to cut the ice. But Compass is also North America’s only producer of high-end sulphate of potash (SOP), which it draws from the rare brines of the Great Salt Lake in Utah by means of solar power.
This intriguing stock (which also handles document storage in Britain) trades at $79.50 and yields almost 2 per cent on its $1.56 dividend.
This analyst also believes the price of oil is getting ready for its “next blast-off.” And he reminds his readers that one growing firm that is lapping up smaller firms is Petro-Bakken Energy Ltd. (TSX-PBN), trading today at $28.97 and yielding 3.3 per cent on an $0.96 dividend.
Finally, there is one more energy opportunity. It’s in natural gas, whose price is still moving in fits and starts.
Talisman Energy (TSX-TLM) was the largest producer in the first big gas recovery in the St. Lawrence Utica shale region. The company is re-inventing itself under new management, and it has also acquired large tracts of land in Papua New Guinea, where the world’s single biggest gas discovery appears to have been made.
The point, Mr. Smedley tells his readers in Investor's Digest of Canada is to get in early, before natural gas finally makes its move. Talisman is his favourite for early bird status, trading at $17.34 and yielding 1.3 per cent on a dividend of $0.225.
Don’t be put to sleep by the back-and-forth motion of the market, this fund manager insists. It’s time to get in and get buying, before it oscillates too far in one direction or the other.
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