Dividend Stocks
Dividends can produce as much as a third of your total return over long periods, and you can even retire on dividends.
There are 4 key stock dividend dates that are involved with dividend payments:
1- The Declaration Date is several weeks in advance of a dividend payment—it’s when company’s board of directors sets the amount and timing of the proposed payment.
2- The Payable Date is the date set by the board on which the dividend will actually be paid out to shareholders.
3- The Record Date is for shareholders who hold the stock before the payable date and receive the dividend payment. That date is set any number of weeks before the payable date.
4-The Ex-Dividend Date is two business days before the record date and it’s when the shares begin to trade without their dividend. If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That’s when a stock is said to trade cum-dividend. If you buy on the ex-dividend date or later, you won’t get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.
We think very highly of stocks that have been paying dividends for five or more years, at TSI Network. Many of these stocks fit in well with our three-part Successful Investor philosophy:
1- Invest mainly in well-established companies;
2- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
3- Downplay or avoid stocks in the broker/media limelight.
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THOMSON REUTERS CORP. $32 (Toronto symbol TRI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 828.6 million; Market cap: $26.5 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) divides its operations into two divisions: Markets accounts for 60% of the company’s revenue and sells financial-information products to banks and other financial institutions. Professional (40% of revenue) sells specialized information to professionals in the legal, accounting, scientific and health-care fields. Thomson Reuters gets about 60% of its revenue from the Americas, followed by Europe (30%) and Asia (10%). Thomson Reuters took its present form when the Ontario-based Thomson Corp. bought the U.K.-based Reuters news agency in April 2008 for $17 billion in cash and shares (all amounts except share price and market cap in U.S. dollars). In the three months ended March 31, 2009, Thomson Reuters’ revenue soared 70.3%, to $3.1 billion from $1.8 billion. However, if you assume that Thomson bought Reuters at the start of 2007, sales would have declined 3.3%. The drop was due to the negative impact of the higher U.S. dollar, which hurts the value of the company’s overseas sales. If you disregard exchange rates, revenue would have risen 3%....
CANADIAN PACIFIC RAILWAY LTD. $40 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 168 million; Market cap: $6.7 billion; Price-to-sales ratio: 1.4; SI Rating: Above Average) ships freight over a rail network between Montreal and Vancouver. It also operates in the midwestern and northeastern United States. CP’s first-quarter earnings fell 31.1%, to $62.5 million, or $0.39 a share, from $90.7 million, or $0.59 a share, a year earlier. If you exclude foreign-exchange gains and losses, per-share earnings fell 54.7%, to $0.34 from $0.75. Revenue fell just 6.6%, to $1.07 billion from $1.15 billion. However, that was mostly because CP bought a railway that operates in eight U.S. states last October. Without this, CP’s revenue would have fallen 13%. The company is stepping up its cost cutting in response to weak shipping volumes. This includes laying off 2,400 workers, or 16% of its workforce. CP has also put more trains into storage....
CANADIAN NATIONAL RAILWAY CO. $45 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 468.4 million; Market cap: $21.1 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) operates the largest freight-rail network in Canada. It also serves 16 U.S. states. In the three months ended March 31, 2009, CN’s revenue fell 3.5%, to $1.86 billion from $1.93 billion a year earlier. The recession cut freight volumes, and CN lowered its fuel surcharges in response to the drop in oil prices. Earnings rose 0.7%, to $302 million from $300 million. Earnings per share rose 3.2%, to $0.64 from $0.62, on fewer outstanding shares. These figures exclude several one-time items, including a gain on the sale of a Toronto rail line and expenses related to CN’s recent takeover of a Chicago-area railway. Still, the company benefitted from a lower income-tax rate and a weaker Canadian dollar, which increased the contribution of its American operations....
A stock with a high corporate profile may provide investors with a feeling of security, but it doesn’t pay them any dividends. Instead, owning a lot of in-the-limelight stocks can work against safe investing. Lots of smart people work in the public relations and the brokerage business. They do a highly effective job of publicizing and promoting their clients’ stocks. Many stocks in the broker/public relations limelight go up more-or-less steadily for years at a time. But when they come down, they can fall much further than you ever thought possible. That’s why it’s a mistake to stuff your portfolio full of them. On the other hand, at any given time, lots of prosperous, well-established companies are out of investor fashion. Some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight....
Right now, Canadian income trusts pay out a high percentage of their cash flows to their unitholders. This lets them avoid paying corporate taxes. It also gives many of them significantly higher yields than a lot of dividend-paying common stocks.
Canadian income trusts face tax changes in 2011
In 2011, the Canadian government will begin taxing income trusts (with the exception of real estate investment trusts or REITs)....
Long-time Successful Investor readers may recall that a decade or two ago, we regularly reminded them that dividends could contribute up to a third of their long-term investment returns, without even considering the tax-cutting effects of the dividend tax credit (see below). Earlier in this decade, yields of dividend paying stocks were generally too low to provide a third of investment returns. But now that yields of dividend paying stocks have moved back up to their current level, it’s realistic to assume they will once again contribute as much as a third of your total return. That’s a good thing for investors, since dividends are more dependable than capital gains as a source of investment income.
Tax credits add to your gains
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CANADA BREAD CO. LTD. $41 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1 billion; Price-to-sales ratio: 2.5; SI Rating: Above Average) is Canada’s second-largest maker of fresh and frozen breads, rolls and bagels. (Weston Bakery is the largest). Canada Bread also makes pastas and sauces. Its main brands include Dempster, Tenderflake and Olivieri. As part of its long-term growth strategy Canada Bread plans to expand its overseas operations, which account for 25% of its sales. It’s now one of the largest makers of bagels and bakery products in the U.K. Canada Bread also owns three bakery plants in the U.S. In the first half of 2008, Canada Bread raised its prices to offset rising energy and wheat costs. Now that these costs have fallen, the company is starting to realize the benefits of this move. In the three months ended March 31, 2009, its earnings rose 22.9%, to $0.59 a share (or a total of $14.9 million) from $0.48 a share (or $12.2 million) a year earlier. These figures include unusual items, such as costs related to a fire at a bakery plant in the U.K. The company received $1.7 million in insurance proceeds to repair the damage. If you exclude these items, earnings per share rose 15.4%, to $0.60 from $0.52. Sales rose 7.9%, to $413.1 million from $382.9 million....
MAPLE LEAF FOODS INC. $8.70 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 129.3 million; Market cap: $1.1 billion; Price-to-sales ratio: 1.0; SI Rating: Average) is Canada’s largest food-processing company. It mainly produces fresh and prepared beef and poultry under the Maple Leaf and Schneider brands. Maple Leaf also owns 89.8% of Canada Bread. In the three months ended March 31, 2009, Maple Leaf’s sales rose 6.3%, to $1.3 billion from $1.2 billion a year earlier. Ingredient costs rose during the quarter, but Maple Leaf was able to pass these on by raising the prices on some of its products. As well, Maple Leaf gets 30% of its sales from outside of Canada, so the lower Canadian dollar helped its results. Earnings soared to $2.9 million, or $0.02 a share, from a loss of $10,000, or nil per share, a year earlier. If you disregard costs related to the company’s restructuring plan, earnings per share would have risen to $0.05 from $0.04....
SAPUTO INC. $22 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 207.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products such as milk, butter and cheese. It also has operations in the United States, Argentina and Europe. Last December, Saputo bought Neilson Dairy, the dairy division of Weston Foods, for $465 million. Neilson makes a wide variety of dairy products in Ontario, and generates $600 million a year in sales. Thanks to Neilson, as well as Saputo’s earlier acquisition of a Wisconsin-based cheese maker for $161 million, its revenue rose 14.5% in the fiscal year ended March 31, 2009, to $5.8 billion from $5.1 billion in the prior year....
IGM FINANCIAL INC. $42 (Toronto symbol IGM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 262.5 million; Market cap: $11 billion; Price-to-sales ratio: 4.2; SI Rating: Above Average) is Canada’s largest independent mutual-fund company. It manages $108.5 billion of assets. Power Financial (Toronto symbol PWF) owns 56.4% of IGM. The sharp drop in stock prices has hurt IGM’s profits. In the three months ended March 31, 2009, its earnings fell 36.8%, to $133.5 million from $211.2 million a year earlier. Earnings per share fell 35.4%, to $0.51 from $0.79, on fewer shares outstanding. Revenue fell 21.7%, to $559.1 million from $714.2 million. The company continues to do a good job of hanging onto its clients. In the first quarter, the redemption rate at its main Investors Group division was 7.7%, among the lowest in the industry, and down from 7.9% in the last quarter of 2008....