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. 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. ...

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....

GREAT-WEST LIFECO INC. $23 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944 million; Market cap: $21.7 billion; Price-to-sales ratio: 1.0; SI Rating: Above Average) is Canada’s second-largest insurance company after Manulife Financial Corp. (Toronto symbol MFC). The company also offers wealth-management services and owns Putnam Investments, a major U.S.-mutual fund company. Power Financial Corp. (Toronto symbol PWF) owns 68.7% of Great-West’s shares. The stock market downturn cut Great-West’s assets under administration by 14.7%, to $332.9 billion as of March 31, 2009, from $390.5 billion a year earlier. Great-West’s fees rise and fall with the value of the securities it manages, so the drop hurt its earnings: In the first quarter of 2009, earnings fell 33.9%, to $326 million from $493 million a year earlier. Earnings per share dropped 41.7%, to $0.35 from $0.60, on more shares outstanding. Great-West holds $2 billion in notes and other securities issued by U.K. and European banks. If conditions worsen, the company may have to write down some of these. However, government support of these banks lowers the likelihood of a big loss....

We continue to recommend that all investors own at least two of Canada’s big-five banks – Bank of Montreal, Royal Bank, CIBC, TD Bank and Bank of Nova Scotia. These are key safe investments for a portfolio. But these should not be the extent of your financial holdings. It is also essential to diversity within each economic sector. Other types of financial investments, such as non-bank financial companies, should play a role in your portfolio. Non-bank financial companies include property and casualty insurance companies, mutual fund companies, wealth management companies, mortgage lenders and more. It also includes life insurance companies. The best of these can be safe investments in a well-balanced portfolio. Recently, Canadian life-insurance stocks have been held back by investor concerns that the recession will continue to hurt their profits....

BOMBARDIER INC. (Toronto symbols BBD.A $3.78 and
BBD.B $3.65, Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $6.4 billion; Price-to-sales ratio: 0.3; SI Rating: Extra Risk) is the world’s third-largest maker of commercial aircraft, after Boeing and Airbus. Bombardier’s aerospace division supplies about half of its revenue and two-thirds of its profits.

The remaining revenue and earnings come from Bombardier’s transportation division, which controls 22% of the global market. This makes Bombardier the world’s largest maker of passenger railcars and commuter trains. The company sells most of its trains under long-term contracts with large, well-financed customers, such as national railways and municipal transit authorities. This helps offset the cyclical nature of Bombardier’s aircraft business.

Bombardier’s revenue fell from $15.6 billion in 2005 (the company’s fiscal year ends January 31) to $14.8 billion in 2006, but rose to $19.7 billion in 2009 (all amounts except share price and market cap in U.S. dollars). It lost $0.08 a share (or a total of $122 million) in 2005. But thanks to a major restructuring of its railcar business, earnings jumped from $0.11 a share (or $192 million) in 2006 to $0.56 a share (or $1 billion) in 2009.

The recession has hurt demand for new aircraft. In the latest fiscal year, Bombardier delivered 349 planes, down from 361 the previous year. Orders for new planes fell more than 50%, to 367 from 698.

Despite the drop in deliveries, the aerospace division’s revenue rose 2.6% in fiscal 2009, to $10 billion from $9.7 billion the previous year. The gain was the result of higher selling prices for business jets, and increased revenue from repairing and maintaining aircraft. Its gross profit margin (its gross profits as a percentage of its revenue) rose to 9.0% from 5.8%. The division’s $23.5-billion order backlog is equal to 2.4 years of revenue.

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CANADIAN UTILITIES LTD. (Toronto symbols CU $35 (class A non-voting) and CU.X $35 (class B voting); Income Portfolio, Utilities sector; Shares outstanding: 125.6 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.6; SI Rating: Above Average) distributes electricity and natural gas in Alberta. It also operates power plants in other parts of Canada, the U.K. and Australia. ATCO Ltd. (Toronto symbols ACO.X and ACO.Y) owns 52.3% of Canadian Utilities. The company is evaluating a proposal to merge its Frontec division with ATCO’s Structures business. Both perform similar functions, including building temporary structures, airfields and communications systems for clients in the resource and construction industries. Canadian Utilities did not say how much this move would save it, but it plans to make a decision by the end of the second quarter. Meanwhile, Canadian Utilities earned $145.4 million, or $1.16 a share, in the three months ended March 31, 2009. That’s 3.3% less than the $150.3 million, or $1.20 a share, it earned a year earlier. If you disregard unusual items, including an insurance benefit stemming from an unplanned outage at its U.K. power plant in the year-earlier quarter, its earnings per share fell 1.7%. This plant is now operating normally, and that helped increase the company’s revenue by 3.8%, to $768.6 million from $740.6 million....