Search

Picking stocks whose share prices will rise is not the only goal that successful investors set for themselves. You also add a great deal of value to your portfolio when you select stocks that are prepared to distribute their profits to the shareholders. A company can share the wealth in two main ways—it can buy back its own shares, or it can pay dividends. Both pay off for investors, which is why a number of the best stocks we recommend have a history of doing both....

BOMBARDIER INC. $3.98 (www.bombardier.com) has won a$226-million U.S. contract to build 35 passenger railcars for Germany’s Abello Rail. The company will deliver these trains by December 2015. In addition, it announced new orders for its CSeries passenger jets worth up to $3.7 billion U.S....

SNC-LAVALIN GROUP INC. $42 (www.snclavalin.com) owns 50%of a joint venture that has won a contract to design and build a new natural-gas-fired power plant in New Jersey. Thanks to new turbines and other technology, this facility will be one of the most environmentally friendly power plants in the U.S....

RIOCAN REAL ESTATE INVESTMENT TRUST $27(www.riocan.com) is raising its monthly distribution by 2.2% with the January 2013 payment, to $0.1175 a unit from $0.115. The new annual rate of $1.41 yields 5.2%. This is the first increase since 2008. Buy.

CGI GROUP INC. $24 (Toronto symbol GIB.A;Aggressive Growth Portfolio, Manufacturing &Industry sector; Shares outstanding: 307.7 million;Market cap: $7.4 billion; Price-to-sales ratio: 1.5; No dividends paid; TSI Network Rating: Extra Risk;www.cgi.com) is Canada’s largest provider of computer outsourcing services. CGI helps its clients automate routine functions, like accounting and buying supplies. That makes them more efficient and lets them focus on their main businesses.

CGI was our #1 stock pick for 2010 and 2011.

Aiming for global growth

...

TRANSCONTINENTAL INC. $11 (Toronto symbol TCL.A;Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 78.2 million; Market cap: $860.2 million; Price-to-sales ratio: 0.4; Dividend yield: 5.3%; TSI Network Rating: Average;www.tctranscontinental.com) has amended the terms of its contract to print the San Francisco Chronicle, which runs to 2024.

The newspaper’s print circulation is falling, so it needs fewer copies. To compensate, the Chronicle will pay Transcontinental$200 million U.S.

To put that in context, Transcontinental earned $149.4 million(Canadian), or $1.85 a share, in its 2012 fiscal year, which ended October 31, 2012. That’s down 3.8% from $155.3 million, or $1.92a share, in fiscal 2011. However, revenue rose 6.2%, to $2.1 billion from $2.0 billion, mainly because it bought new printing plants.That offset lower ad revenue at its newspapers, as well as the completion of a big contract to print census forms in 2011.

...

LOBLAW COMPANIES LTD. $41 (Toronto symbol L; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 281.5 million; Market cap: $11.5 billion; Price-to-sales ratio: 0.4; Dividend yield: 2.1%; TSI Network Rating: Above Average;www.loblaw.ca) has launched a new line of gluten free baked goods for people who can’t digest wheat.These products include breads, cakes and cookies.The company plans to launch more gluten-free foods over the next few months.

Only about 1% of the population has trouble digesting wheat, so consumer concerns about gluten levels could pass quickly. Even so, these products should help Loblaw attract more customers.

Loblaw is a buy.

...

FORTIS INC. $34 (Toronto symbol FTS;Conservative Growth Portfolio, Utilities sector;Shares outstanding: 190.7 million; Market cap: $6.5billion; Price-to-sales ratio: 1.8;D i v i d e n d y i e l d : 3 . 6 % ;TSI Network Rating: Above Average; www.fortis.ca) has raised its quarterly dividend by3.3%, to $0.31 a share from$0.30. The new annual rate of$1.24 yields 3.6%. Fortis has raised its payout every year for the past 40 years.

The company should complete its takeover of CH Energy Group (New York symbol CHG)in the first quarter of 2013. CH is a regulated utility that supplies electricity to 300,000 customers in the Mid-Hudson River Valley in New York State.

Fortis will pay $1.5 billion U.S. for CH Energy, including assuming $500 million U.S. of debt. That’s a high 23% of the company’s market cap. Large acquisitions, even of stable regulated utilities like CH Energy, can come with unpleasant surprises.

...

ENBRIDGE INC. $43 (Toronto symbol ENB;Conservative Growth Portfolio, Utilities sector;Shares outstanding: 799.9 million; Market cap: $34.4billion; Price-to-sales ratio: 1.4; Dividend yield: 2.9%;TSI Network Rating: Above Average;www.enbridge.com) has bought 50% of the Massifdu Sud wind project in Quebec. This is the company’s second wind power investment in that province.

Enbridge paid $170.0 million for its stake in this facility. That’s equal to 63.2% of the $269.0million, or $0.34 a share, that it earned in the three months ended September 30, 2012.

Wind farms don’t make money on their own, but operators profit from subsidies. This project has a20-year deal to sell its power to Hydro-Quebec.

...

PENGROWTH ENERGY CORP. $4.97 (Toronto symbol PGF;Aggressive Growth Portfolio, Resources sector; Shares outstanding: 507.1 million; Market cap: $2.5 billion; Price-to-sales ratio: 1.6; Dividend yield: 9.7%; TSI Network Rating: Average;www.pengrowth.com) has agreed to sell its 10.02% interest in the Weburn oil project in Saskatchewan.

The company will receive $315 million when the deal closes by the end of January 2013. It will use the cash to pay down its long-term debt, which was $1.75 billion on September 30, 2012.That’s a high 70% of its market cap.

Pengrowth is a buy.

...

IMPERIAL OIL LTD. $43 (Toronto symbol IMO;Conservative Growth Portfolio; Resources sector;Shares outstanding: 847.6 million; Market cap: $36.4billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%;TSI Network Rating: Average; www.imperialoil.ca)reported that its third quarter earnings jumped21.1%, to $1.0 billion, or $1.22 a share. A year earlier, it earned $859 million, or $1.01 a share.Cash flow per share rose 18.8%, to $1.52 from$1.28, while revenue gained 4.9%, to $8.3 billion from $7.9 billion.

Overall production fell 3.7%, to 285,000 barrels a day from 296,000 a year earlier, due to asset sales and maintenance shutdowns. However, earnings from oil refining and distribution (52% of the total)rose 97.1%.

The company will soon start up its 71%-owned Kearl oil sands project, which will increase its daily production by 78,100 barrels. Exxon Mobil Corp.(New York symbol XOM) owns the remaining29%. Exxon also owns 69.6% of Imperial.

...

SUNCOR ENERGY INC. $33 (Toronto symbol SU; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.5 billion; Market cap:$49.5 billion; Price-to-sales ratio: 1.3; Dividend yield:1.6%; TSI Network Rating: A v e r a g e ;www.suncor.com) earned $1.3 billion in the quarter ended September 30, 2012. That’s down 27.2%from $1.8 billion a year earlier. Earnings fell 25.4%,to $0.85 a a share from $1.14, on fewer shares outstanding. Revenue declined 7.9%, to $9.6 billion from $10.4 billion. However, cash flow per share rose 2.9%, to $1.78 from $1.73.

Suncor shut down some of its operations for planned maintenance. As a result, its average daily production fell 2.0% in the quarter, to 535,500barrels from 546,000 a year earlier. That more than offset a 47.8% jump in earnings at its refining and marketing division (46% of total earnings).

Suncor recently opened the fourth phase of its six-phase Fire bag oil sands project. This should help it meet its production goal of 540,000 to 580,000barrels a day for all of 2012.

...

LINAMAR CORP. $25 (Toronto symbol LNR;Aggressive Growth Portfolio, Manufacturing &Industry sector; Shares outstanding: 64.7 million;Market cap: $1.6 billion; Price-to-sales ratio: 0.5;Dividend yield: 1.3%; TSI Network Rating: Extra Risk; www.linamar.com) gets 85% of its revenue by making engines, transmissions and other precision machined parts for automakers. The company has plants in North America, Europe and Asia.

The remaining 15% of Linamar’s revenue comes from its self-propelled, scissor-type elevating work platforms, which it sells under the Skyjack name,plus consumer products, such as lawn mowers and cargo trailers.

Thanks to rising new car sales, particularly in theU.S., Linamar’s earnings jumped 33.3% in the three months ended September 30, 2012, to $0.52 a sharefrom $0.39 a year earlier.

...

EMERA INC. $35 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 124.7 million; Market cap: $4.4 billion;Price-to-sales ratio: 2.1; Dividend yield: 4.0%; TSI Network Rating:Average; www.emera.com) is buying a biomass plant in Brooklyn,Nova Scotia, from that province’s government. This facility generates power by burning waste wood from nearby lumber mills.

Emera will pay $25 million for the plant when the deal closes in early 2013. That’s equal to 56% of the $44.7 million, or $0.36 a share, that it earned in the third quarter of 2012.

The company gets most of its power from coal-burning plants, so investing in renewable power facilities like this one will help it comply with tougher environmental regulations.

...

PRECISION DRILLING CORP. $8.42(Toronto symbol PD; Aggressive Growth Portfolio, Resource sector; Shares outstanding:276.3 million; Market cap: $2.3 billion; Price-to-sales ratio: 1.1;Dividend yield: 2.4%; TSI Network Rating: Extra Risk;www.precisiondrilling.com) has agreed to build and operate two drilling rigs for Kuwait’s state-owned oil company. The company did not say how much this contract is worth, but the rigs will start up in2014 and run for a five-year term.

This is a small order for Precision, which operates over 325 rigs. Still, this deal will help expand its international operations, which supply just 5% of its total revenue. It should also help Precision win more contracts in the Persian Gulf region.

Precision Drilling is a buy.

...

CANADIAN IMPERIAL BANK OF COMMERCE$82 (Toronto symbol CM; Conservative Growth Portfolio, Finance sector; Shares outstanding: 403.7 million; Market cap: $33.1 billion; Price-to-sales ratio: 1.9; Dividend yield: 4.6%;TSI Network Rating: Above Average; www.cibc.com)has agreed to settle a lawsuit related to the 2008collapse of U.S. investment bank Lehman Brothers.

Bankruptcy trustees sued CIBC and other banks for failing to honor certain financial commitments they made to Lehman. After Lehman failed, CIBC felt it did not have to provide further funds and recognized a gain of $841 million U.S.

CIBC will pay $149.5 million U.S. to settle this lawsuit. To put that in context, the bank earned $3.3billion (Canadian) in fiscal 2012. That’s up 8.5%from $3.0 billion 2011. Earnings per share rose6.6%, to $8.07 from $7.57, on more shares outstanding.

...

BANK OF MONTREAL $62 (Toronto symbol BMO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 650.8 million; Market cap: $40.3 billion; Price-to-sales ratio: 1.9; Dividend yield: 4.6%; TSI Network Rating: Above Average;www.bmo.com) earned $4.1 billion in fiscal 2012.That’s up 24.9% from $3.3 billion in 2011.Earnings per share rose 17.6%, to $6.00 from $5.10,on more shares outstanding. These figures exclude integration costs related to U.S. bank Marshall & Ilsley, which Bank of Montreal bought for $4.1billion in stock in July 2011. Revenue rose 15.7%,to $16.1 billion from $13.9 billion.

Earnings at the Canadian banking business (46%of Bank of Montreal’s total earnings) increased0.7%. Low interest rates continue to attract borrowers, but they also hurt the income that the bank of earns on its loans. Marshall & Ilsley pushed up earnings at the bank’s U.S. operations (15% of the total) by 50.1%. Acquisitions also raised revenue at the wealth management division (14%) by 12.3%.

Fewer of the bank’s corporate clients are merging and issuing new stock. Even so, lower income taxes and loan losses pushed up earnings at the securities tradingdivision (25% of the total) by 5.1%.

...

BANK OF NOVA SCOTIA $58 (Toronto symbol BNS; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.2 billion; Market cap: $69.6billion; Price-to-sales ratio: 2.4; Dividend yield: 3.9%;TSI Network Rating: Above Average;www.scotiabank.com) recently bought ING Direct, which offers a wide variety of no-fee banking services, mainly over the Internet. ING Direct has1.8 million customers and $30 billion of deposits.

At $3.1 billion, this was the biggest purchase in the bank’s history. The price is also equal to 48% of the $6.5 billion that it earned in fiscal 2012. That’s up 21.3% from $5.3 billion in 2011. Earnings per share rose 15.2%, to $5.22 from $4.53, on more shares outstanding. Revenue rose 13.8%, to $19.7billion from $17.3 billion.

Earnings at the Canadian division (30% of the total) rose 16%, thanks to strong loan demand and lower loan-loss provisions. International earnings (28%) rose18%, partly due to its purchase of 51% of Colombia’s fifth largest bank.

...

TORONTO-DOMINION BANK $82 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 916.1 million; Market cap: $75.1 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.8%; Stonework Rating: Above Average;www.td.com) recently agreed to buy the U.S. credit card portfolio of retailer Target Corp. (New York symbol TGT). TD will pay an amount equal to these loans’ $5.9-billion U.S. value. In addition, under a new seven-year deal, TD will become the exclusive issuer of Target-branded cards in the U.S.

Meanwhile, the bank earned $7.1 billion (Canadian)in its 2012 fiscal year. That’s up 10.0% from$6.4 billion in fiscal 2011. Because of more shares outstanding, earnings per share rose at a slower pace of 8.2%, to $7.42 from $6.86. Revenue increased6.7%, to $23.1 billion from $21.7 billion.

Earnings at TD’s Canadian retail banking division(which supplies 49% of the bank’s total earnings) rose 11.7% thanks to strong loan demand and the bank’s purchase of MBNA’s Canadian credit card operations. High loan demand also pushed up earnings at the U.S. division (20% of the total) by 12.0%. The wealth management division’s earnings (19%) rose 4.0%. Earnings from securities trading (12%) increased 8.0% as low interest rates prompted businesses to issue more bonds.

...

ROYAL BANK OF CANADA $61 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.5 billion; Market cap:$91.5 billion; Price-to-sales ratio: 2.4; Dividend yield:3.9%; TSI Network Rating: Above Average;www.rbc.com) is Canada’s largest bank by market cap. It earned a record $7.6 billion, or $4.96 a share, in its 2012 fiscal year, which ended October 31,2012. That’s up 8.9% from $7.0 billion, or $4.55 a share, in fiscal 2011. Revenue rose 7.7%, to $29.8billion from $27.6 billion.

The bank continues to report strong loan demand at its retail banking operations in Canada, the U.S. and the Caribbean. This division’s earnings, which accounted for 56% of Royal’s total, rose 9.3%.Earnings from securities trading (22% of overall earnings) rose 22.4% due to higher income from bond trading. The insurance division’s earnings (10%) climbed19.0% due to fewer claims.

These gains offset a 5.9%earnings decline at Royal’s wealth management business(11% of the total). Earnings at the investor and treasury services division (1%) fell 63.0%.That’s because of a loss related to the purchase of 50% of joint venture that the bank didn’t already own. Without this loss, this business’s earnings would have risen by 30%.

...

CGI GROUP INC. $24 (Toronto symbol GIB.A) was our Stock of the Year for both 2010 and 2011. We first recommended it as our top choice at$15, which works out to a 60.0% rise.

The company should continue to benefit as more businesses and government agencies use its computer outsourcing expertise to cut their costs. For more on CGI, see page 18.

CGI Group is a buy.

...

p>CANADIAN PACIFIC RAILWAY LTD.$108 (Toronto symbol CP) was our top pick for 2012 at $69. Since then, the stock has gained 56.5%. We’ve long admired CP, but bad weather and poor efficiency have held back its earnings and stock price in the past few years.

It seems activist investment firm Pershing Square shared our view, and in 2011 it became CP’s largest shareholder(it now holds 14.2%). We felt Pershing would push management to improve efficiency, and help unlock more of CP’s value. That’s partly why we made CP our #1 buy for 2012.

...

TECK RESOURCES LTD. $37 (Toronto symbol TCK.B;Conservative Growth Portfolio, Resources sector; Shares outstanding: 586.0 million; Market cap: $21.7 billion; Price-to sales ratio: 2.0; Dividend yield: 2.4%; TSI Network Rating: Average; www.teck.com) is a leading producer of metallurgical coal, a key ingredient in steel making. Its six coal mines (five inB.C. and one in Alberta) should last from six to 75 years.

Asian customers buy 60% of the company’s coal. In 2011,coal accounted for 49% of Teck’s revenue and 57% of its earnings.

Teck also produces copper (27%, 28%), which its clients in Asia and Europe use to make electrical wire, auto parts and components for electronic devices. As well, Teck is a major supplier of zinc (24%, 15%), which prevents rusting when added to steel.

...

Pat McKeough responds to many personal questions about specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.

This week, an Inner Circle member asked about the wisdom of taking profits on a high-yielding stock whose shares have had a big run-up in price. Pat assesses the prospects of this gas station operator which has done an astute job of franchising its stations but also pursues a growth-by-acquisition that adds risk in a competitive industry.

Q: Hello again Pat: I bought Parkland Fuel Corp. about 18 months ago and have enjoyed the wonderful yield and am up 60% on the stock value. I am tempted to realize my capital gain. What are your thoughts on this stock?

...

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment advice, including the best use of financial ratios in your stock market research. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “When you’re trying to assess whether a company can manage its debt, the most popular ratio may actually be misleading.”...