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ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $20.77 (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of its assets. The fund’s MER is 0.50%. It yields 4.6%.

The fund’s top holdings are CIBC, 7.1%; National Bank, 5.8%; TD Bank, 5.6%; Bank of Montreal, 5.3%; Bonterra Energy, 4.8%; Royal Bank, 4.6%; Telus Corp., 4.6%; Bank of Nova Scotia, 4.3%; BCE Inc., 4.1%; and AG Growth International, 4.0%.

The fund holds 54.4% of its assets in financial stocks. Utilities are next, at 21.2%. The top Canadian finance stocks have sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector.

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ISHARES S&P/TSX 60 INDEX FUND $17.71 (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good, low-fee way to buy the top stocks on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets.

The index mostly consists of high-quality companies. However, as the fund must ensure that all sectors are represented, it holds a few stocks we wouldn’t include.

The index’s top holdings are Royal Bank, 7.4%; TD Bank, 6.8%; Bank of Nova Scotia, 5.8%; Suncor Energy, 4.5%; Barrick Gold, 3.7%; CN Railway, 3.5%; Bank of Montreal, 3.4%; Potash Corp., 3.3%; Goldcorp, 3.3%; BCE Inc., 3.1%; Canadian Natural Resources, 3.0%; TransCanada Corp., 2.9%; CIBC, 2.8%; Enbridge, 2.8%; Cenovus Energy, 2.4%; and Telus Corp., 1.8%.

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GREAT-WEST LIFECO $22.23 (Toronto symbol GWO; Shares outstanding: 949.8 million; Market cap: $21.1 billion; TSINetwork Rating: Above Average; Dividend yield: 5.5%) is Canada’s largest insurance company, with $523.6 billion in assets under administration. It operates under several well-known banners, including Great West Life, Canada Life and Freedom 55. It also sells mutual funds and retirement planning and wealth management services. Power Financial Corp. owns 68.2% of Great-West.

In the three months ended June 30, 2012, Great-West’s revenue rose 9.2%, to $7.8 billion from $7.1 billion a year earlier. Earnings fell 6.7%, to $491 million, or $0.52 a share, from $550 million, or $0.55 a share.

Earnings declined from exceptionally strong results a year ago, but they still beat the consensus estimate of $0.48 a share.

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GEORGE WESTON LTD. $63.26 (Toronto symbol WN; Shares outstanding: 128.2 million; Market cap: $8.1 billion; TSINetwork Rating: Above Average; Dividend yield: 2.3%) makes a number of products through Weston Foods, including fresh and frozen baked goods in Canada and frozen baked goods, biscuits, cookies, cones and wafers in the U.S. The company also owns a 63% interest in Loblaw (see left).

Weston’s revenue rose 1.3% in the three months ended June 30, 2012, to $7.63 billion from $7.53 billion a year earlier. Without one-time items, earnings per share fell 20.9%, to $1.06 from $1.34, largely due to a lower contribution from Loblaw.

The company holds cash of $3.6 billion, which it could use to increase its stake in Loblaw or make other investments to add to its growth.

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LOBLAW COMPANIES $34.65 (Toronto symbol L; Shares outstanding: 289.9 million; Market cap: $10.0 billion; TSINetwork Rating: Above Average; Dividend yield: 2.4%; www.loblaw.ca) is Canada’s largest food retailer, with about 1,000 stores.

In the three months ended June 16, 2012, Loblaw’s sales rose 1.3%, to $7.4 billion from $7.3 billion a year earlier. Overall sales at its supermarkets rose 1.1%, while same-store sales gained 0.2%. Revenue from its financial-services division, which mainly issues credit cards, rose 14.9%.

Earnings fell 19.3%, to $159 million, or $0.57 a share, from $197 million, or $0.70 a share, a year earlier. But the decline was mainly because Loblaw continues to invest in new computers as part of a far-reaching plan to improve its efficiency and avoid product shortages in its stores. In the latest quarter, the company spent $20 million on these initiatives.

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BANK OF NOVA SCOTIA $53.87 (Toronto symbol BNS: Shares outstanding: 1.1 billion; Market cap: $63.6 billion; TSINetwork Rating: Above Average; Div. yield: 4.2%, www.scotiabank.com) continues to build on its extensive international operations.

The bank recently announced deals with China’s Bank of Xi’an and India’s Kotak Mahindra Bank that make it easier for immigrants, international students and foreign workers to transfer their accounts to Bank of Nova Scotia’s Canadian branches.

Once they arrive in Canada, these clients can also apply for credit cards and other services.

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PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST $24.14 (Toronto symbol PMZ.UN; Units outstanding: 92.8 million; Market cap: $2.3 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.1%; www.primarisreit.com) owns large malls in medium-sized Canadian cities and suburban areas. In all, it owns 33 properties that contain 13.7 million square feet of leasable area.

Primaris has 43% of its properties in Ontario, followed by Alberta, 16%; B.C., 15%; Quebec, 13%; Saskatchewan, 9%; Manitoba, 3% and New Brunswick, 1%. Primaris has a 97.4% occupancy rate.

In the quarter ended June 30, 2012, acquisitions increased Primaris’s revenue by 19.5%, to $98.9 million from $82.8 million a year ago. Cash flow rose 53.3%, to $33.4 million from $21.8 million. Cash flow per unit rose 26.7%, to $0.384 from $0.303, on more units outstanding. The trust yields 5.1%.

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RIOCAN REAL ESTATE INVESTMENT TRUST $27.48 (Toronto symbol REI.UN; Units outstanding: 295.9 million; Market cap: $8.2 billion; TSINetwork Rating: Average; Dividend yield: 5.0%; www.riocan.com) is Canada’s largest real estate investment trust (REIT). It has interests in 278 shopping malls in Canada, including 10 under development. These properties contain over 59 million square feet of leasable area.

RioCan recently ended its joint venture with Cedar Shopping Centers in the U.S., so it now owns 100% of all of its 48 malls in that country. RioCan held 80% of this venture, which owned 22 shopping centres in the U.S. Under the deal, RioCan will buy Cedar’s 20% stake in 21 malls, while Cedar will buy RioCan’s 80% stake in another mall.

In the quarter ended June 30, 2012, RioCan’s revenue rose 13.5%, to $269 million from $237 million a year earlier. Cash flow per unit rose 2.8%, to $0.37 from $0.36. The units yield 5.0%.

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MANITOBA TELECOM SERVICES INC. $33.45 (Toronto symbol MBT; Shares outstanding: 66.7 million; Market cap: $2.2 billion; TSINetwork Rating: Average; Dividend yield: 5.1%; www.mts.ca) gets 55% of its revenue from its MTS division, which has over 1.3 million telephone and wireless customers in Manitoba.

The remaining 45% comes from its Allstream division, which sells voice and data communication services to Canadian companies.

Manitoba Tel is now conducting a strategic review of Allstream. This could lead to a sale of some or all of this business.

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BCE INC. $43.43 (Toronto symbol BCE; Shares outstanding: 773.9 million; Market cap: $33.6 billion; TSINetwork Rating: Above Average; Dividend yield: 5.2%; www.bce.ca) is Canada’s largest provider of telephone, Internet and wireless services. It also sells satellite TV services across the country. The company just bought Canadian radio and TV giant Astral Media for $3.4 billion.

In the three months ended June 30, 2012, BCE’s earnings per share rose 18.6%, to $1.02 from $0.86 a year earlier. Revenue fell 0.6%, to $4.9 billion from $5.0 billion. Revenue at the traditional telephone business, which supplies 57% of BCE’s overall revenue, fell 3.9%, partly due to strong competition from cable companies.

However, some of BCE’s land-line clients are switching to mobile phones, which are more profitable for the company. That helped fuel a 6.7% revenue increase at the wireless division (31% of total revenue). Revenue at BCE’s media division (12%) rose 0.9%.

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From time to time, companies set up one or more of their divisions or subsidiaries as an independent company, then hand out shares in that company to their own shareholders, as a special dividend or “spinoff”. Many investors seem to view spinoffs as a nuisance, because they leave you with a tiny holding in a stock you didn’t choose and that you know little about. They may dump them as soon as they get a chance. On the other hand, a number of studies have shown that after an initial adjustment period of a few months, spinoffs tend to outperform groups of comparable stocks for several years....

CAE INC. $10 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 258.7 million; Market cap: $2.6 billion; Price-to-sales ratio: 1.4; Dividend yield: 2.0%; TSINetwork Rating: Average; www.cae.com) recently sold six flight simulators and related equipment....

DUNDEE CORP. $24 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 54.7 million; Market cap: $1.3 billion; Price-to-sales ratio: 1.8; No dividends paid; TSINetwork Rating: Average; www.dundeecorp.com) is a holding company with investments in wealth management, real estate, resources and agriculture.

In the quarter ended June 30, 2012, Dundee lost $16.8 million, or $0.34 a share. That’s because it wrote down the value of securities it holds by $34.0 million. A year earlier, it earned $21.0 million, or $0.28 a share, partly due to $1.9 million in investment gains. Revenue jumped 40.7%, to $171.2 million from $121.7 million.

Dundee is still a buy.

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CANADIAN PACIFIC RAILWAY LTD. $86 (Toronto symbol CP; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 171.3 million; Market cap: $14.7 billion; Price-to-sales ratio: 2.7; Dividend yield: 1.6%; TSINetwork Rating: Above Average; www.cpr.ca) earned $103 million, or $0.60 a share, in the three months ended June 30, 2012. That’s down 19.5% from $128 million, or $0.75 a share, a year earlier.

A nine-day strike by CP’s locomotive engineers, conductors and yard workers cut its earnings by around $0.30 a share in the latest quarter. In addition, CP paid severance costs to its previous chief executive and other expenses related to the hiring of its new CEO. Without these items, CP would have earned $1.20 a share.

CP is benefiting from a plan to improve its efficiency with new locomotives, upgraded tracks, and software that optimizes train loads and speeds. This was the main reason for the higher earnings.

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CANADIAN NATIONAL RAILWAY CO. $87 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 434.8 million; Market cap: $37.8 billion; Price-to-sales ratio: 3.8; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.cn.ca) reported that its earnings rose 17.3% in the three months ended June 30, 2012, to $631 million from $538 million a year earlier. Earnings per share rose 22.0%, to $1.44 from $1.18, on fewer shares outstanding. If you exclude one-time items, such as gains on sales of rail lines, earnings per share rose 19.0%, to $1.50 from $1.26.

Revenue rose 12.5% to $2.5 billion from $2.3 billion. CN saw higher shipments of metals and minerals, coal, intermodal (containers that can be shipped by rail, ship or truck), petroleum and chemicals, and automotive and forest products. That offset lower shipments of grain and fertilizer.

CN’s operating ratio improved to 66.2% from 69.0% a year earlier. (Operating ratio is calculated by dividing a company’s regular operating costs by its revenue. The lower the ratio, the better.)

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MOLSON COORS CANADA INC. (Toronto symbols TPX.A $43 and TPX.B $43; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 180.9 million; Market cap: $7.8 billion; Price-to-sales ratio: 2.3; Dividend yield: 2.9%; TSINetwork Rating: Average; www. molsoncoors.com) has completed its $3.4-billion purchase of StarBev LP, which owns nine breweries in Central and Eastern Europe (all amounts except share prices and market cap in U.S. dollars).

In the three months ended June 30, 2012, this acquisition contributed $19.7 million to Molson Coors’s pre-tax earnings. That helped push up the company’s overall earnings by 8.0%, to $250.1 million from $231.6 million a year earlier. Earnings per share rose 12.2%, to $1.38 from $1.23, on fewer shares outstanding. Sales rose 7.0%, to $999.4 million from $933.6 million. StarBev contributed $57.3 million to the latest sales figure.

The company borrowed $2.9 billion to buy StarBev. As a result, its long-term debt has risen to $4.1 billion from $1.9 billion at the end of 2011. That’s a high 52% of its market cap. However, brewing is a stable business, and StarBev’s cash flows will help Molson Coors pay down this debt.

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IMPERIAL OIL LTD. $45 (Toronto symbol IMO; Conservative Growth Portfolio; Resources sector; Shares outstanding: 847.6 million; Market cap: $38.1 billion; Price-to-sales ratio: 1.2; Dividend yield: 1.1%; TSINetwork Rating: Average; www.imperialoil.ca) is getting a lot of inquiries about an oil refinery it is selling in Dartmouth, Nova Scotia. Imperial is selling this facility because it uses higher priced oil from the North Sea instead of cheaper crude from western Canada. After the sale, it will still own three refineries.

The company aims to complete the sale in early 2013. If it can’t, it will probably convert the refinery into a storage terminal.

Imperial Oil is a buy.

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EMERA INC. $35 (Toronto symbol EMA; Income Portfolio, Utilities sector; Shares outstanding: 123.9 million; Market cap: $4.3 billion; Price-to-sales ratio: 2.0; Dividend yield: 4.0%; TSINetwork Rating: Average; www.emera.com) owns Nova Scotia Power, which is that province’s main electricity supplier. It also owns electrical utilities in the U.S. and the Caribbean.

In the three months ended June 30, 2012, revenue fell 0.1%, to $501.3 million from $501.7 million a year earlier. Two large industrial customers in Nova Scotia closed their operations, which cut electricity sales in the province by 19.8%. That offset the positive impact of higher power rates.

However, earnings jumped 44.7%, to $46.3 million from $32.0 million a year earlier. Because it had slightly more shares outstanding, earnings per share rose 42.3%, to $0.37 from $0.26. If you exclude a gain on an investment, Emera would have earned $0.28 a share in the latest quarter.

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FORTIS INC. $33 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 186.9 million; Market cap: $6.2 billion; Price-to-sales ratio: 1.7; Dividend yield: 3.6%; TSINetwork Rating: Above Average; www.fortis.ca) is the main electricity supplier in Newfoundland and Prince Edward Island. It also operates power plants in other parts of Canada, the U.S. and the Cayman Islands. In addition, wholly owned FortisBC Energy distributes natural gas in British Columbia.

Fortis recently agreed to buy CH Energy Group (New York symbol CHG), which supplies electricity to 300,000 customers in New York State. This company does not own power plants; instead, it buys electricity from other producers. It also distributes natural gas to 75,000 users.

Regulators must still approve the deal, but Fortis should close it in early 2013. It will pay $1.5 billion U.S., including $500 million U.S. of CH’s debt.

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p>ATCO LTD. (Toronto symbols ACO.X [class I non-voting] $76 and ACO.Y [class II voting] $76; Income Portfolio, Utilities sector; Shares outstanding: 57.6 million; Market cap: $4.4 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.7%; TSINetwork Rating: Above Average; www.atco.com) is a holding company. Its main subsidiary is 52.7%-owned Canadian Utilities (see page 103). It also owns 75.5% of ATCO Structures & Logistics, which builds temporary buildings for construction companies and energy exploration firms; Canadian Utilities owns the remaining 24.5%. In the three months ended June 30, 2012, ATCO’s revenue rose 11.9% to $987 million from $882 million a year earlier. That’s because its structures division won a number of new contracts, and it recently purchased a gas-distribution business in Australia. Earnings rose 21.3%, to $74 million, or $1.28 a share, from $61 million, or $1.07.

Companies like ATCO sometimes trade for less than the value of their assets. Investors call this a “holding company discount.” That’s why you can buy a share of ATCO for $76 and get roughly $79 worth of Canadian Utilities. That means you get ATCO’s non-utility businesses, which provide a third of its earnings, for free.

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CANADIAN UTILITIES LTD. (Toronto symbols CU [class A non-voting] $67 and CU.X [class B voting] $67; Income Portfolio, Utilities sector; Shares outstanding: 127.6 million; Market cap: $8.5 billion; Price-to-sales ratio: 2.8; Dividend yield: 2.6%; TSINetwork Rating: Above Average; www.canadianutilities.com) distributes electricity and natural gas in Alberta. It also operates 18 power plants in Canada, Australia and the U.K. ATCO Ltd. (see page 104) owns 52.7% of the company.

Canadian Utilities continues to benefit from last year’s $1.1-billion purchase of a company that distributes natural gas in Perth, Australia. That helped offset lower revenues from its Alberta power plants due to planned maintenance shutdowns.

As a result, the company’s earnings rose 5.6% in the second quarter of 2012, to $95 million, or $0.74 a share. The new Australian business added $16 million to that total. A year earlier, Canadian Utilities earned $90 million, or $0.70 a share. Revenue rose 6.0%, to $706 million from $666 million.

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TRANSCANADA CORP. $44 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 704.0 million; Market cap: $31.0 billion; Price-to-sales ratio: 3.6; Dividend yield: 4.0%; TSINetwork Rating: Above Average; www.transcanada.com) is mainly known for its natural gas and oil pipelines. However, the company continues to expand its electrical-power business. TransCanada’s 19 power plants in Canada and the U.S. now supply 30% of its revenue.

The company has agreed to build a new gas-fired power plant near Napanee, Ontario, as part of a deal with the Ontario Power Authority (OPA), which regulates the province’s power producers. This new plant will replace a plant that TransCanada previously agreed to build in Oakville, Ontario.

The OPA will pay TransCanada $210 million for the turbines and other equipment originally earmarked for the Oakville plant. The company will also receive $40 million to cover the costs of equipment that it can’t move to the new site. However, the OPA will pay TransCanada lower rates for the new plant’s power when it starts up in 2017.

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AGRIUM INC. $102 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 158.0 million; Market cap: $16.1 billion; Price-to-sales ratio: 1.0; Dividend yield: 1.0%; TSINetwork Rating: Average; www.agrium.com) has gained 30% since May 2012....

RIOCAN REAL ESTATE INVESTMENT TRUST $27 (Toronto symbol REI.UN; Aggressive Growth Portfolio, Manufacturing & Industry sector; Units outstanding: 291.3 million; Market cap: $7.9 billion; Price-to-sales ratio: 5.0; Dividend yield: 5.1%; TSINetwork Rating: Average; www.riocan.com) is Canada’s largest real estate investment trust (REIT).

RioCan specializes in big-box-style outdoor malls. It owns 278 shopping centres in Canada, 10 of which are under development. Most are in suburban areas, where land is generally cheaper than in towns and cities. The trust often leaves room at its malls for expanding existing stores and building new ones. This makes itseasy to add more tenants.

In the past few years, RioCan has expanded in the U.S., where it now owns or invests in 48 malls, 22 of which the trust operates through a joint venture with Cedar Shopping Centers, Inc. (New York symbol CDR). RioCan owns 80% of this joint venture and 14.3% of Cedar.

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Pat McKeough responds to many personal questions about stock investing 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 the Inner Circle.

This week, we had a question from an Inner Circle on a U.S. company that operates a group of bakery-cafes. This stock has seen its share price rise substantially in the past year and Pat examines whether it can continue to maintain its strong niche in the face of intense competition among restaurant chains....