BCE Inc.

BCE INC. $35 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 807.6 million; Market cap: $28.3 billion; SI Rating: Above average) has moved up to its highest level in five years on takeover rumors. Media reports suggest that the Ontario Teachers’ Pension Plan, which owns 5.3% of BCE, may team up with a U.S. firm to offer $40 a share. Acquiring control of BCE could be difficult. Institutions control roughly 22% of BCE’s stock, and could block an offer they feel is too low. Federal regulations limit foreign ownership of Canadian telecom companies to 46%, which makes it harder to recruit non-Canadian investors. Other potential Canadian bidders like Telus would probably face competition concerns, particularly in the highgrowth wireless field....

ISHARES CDN LARGECAP 60 INDEX FUND $76.72 (Toronto symbol XIU; buy or sell through a broker) (formerly called iUnits S&P/TSX 60 Index Participation Fund) is a good low-fee way to buy the top stocks on the TSE. The units hold a basket of stocks that represent the S&P/TSX 60 Index. The index is made up of the 60 largest and most heavily traded stocks on the TSE. Most of the 60 stocks in the index are good quality companies. However, to meet the requirement that all sectors are represented, the index holds a few firms we wouldn’t include, such as Cott Corporation and Celestica. The index’s top holdings are: Royal Bank, 7.1%; Manulife, 6.0%; Bank of Nova Scotia, 5.1%; TD Bank, 4.9%; EnCana Corporation, 4.4%; Suncor Energy, 3.9%; Bank of Montreal, 3.9%; Canadian Natural Resources, 3.3%; CIBC, 3.3%; Sun Life Financial, 2.9%; Barrick Gold, 2.8%; BCE Inc., 2.6%; and Canadian National Railway, 2.5%....

The best exchange-traded funds (ETFs) offer well-diversified, tax-efficient portfolios with very low management fees. Due to buyback and share issue arrangements, ETFs always trade close to their net asset value. Here are some of the best deals available in ETFs. We’ve also analysed one we don’t like. ISHARES CDN LARGECAP 60 INDEX FUND $76.72 (Toronto symbol XIU; buy or sell through a broker) (formerly called iUnits S&P/TSX 60 Index Participation Fund) is a good low-fee way to buy the top stocks on the TSE. The units hold a basket of stocks that represent the S&P/TSX 60 Index. The index is made up of the 60 largest and most heavily traded stocks on the TSE....

BMO DIVIDEND FUND $50.87 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ont., M5K 1J5, 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) currently holds about 58.3% of its portfolio in the Financial services industry. Its largest holding is Energy at 16.1%. BMO Dividend Fund’s largest holdings are Manulife Financial, Bank of Nova Scotia, CIBC, Royal Bank of Canada, Enbridge, Toronto-Dominion Bank, Canadian National Railway, TransCanada Corporation, Imperial Oil, Brookfield Asset Management, Thomson Corporation, BCE Inc. and Sun Life Financial. Over the last five years, the $5.7 billion BMO Dividend Fund has posted a 13.2% annual rate of return. That’s just under the S&P/TSX 60’s gain of 13.4%. The fund gained 9.9% over the last year, compared to a gain of 15.0% for the S&P/TSX 60. BMO Dividend’s MER is 1.73%....

BMO Dividend and Royal Dividend hold mostly high-quality stocks. These stocks sometimes run into deep trouble and go through lengthy struggles, just like lesser investments. Eventually, though, most solve their problems and go on to thrive anew. Both funds hold a high proportion of their assets in financial services stocks. However, if you must focus on something, finance is a relatively stable sector. If you do invest in these funds, be sure to adjust the rest of your portfolio so these funds won’t overly concentrate your holdings in the financial sector....

Telus has been a top performer for us in the past few years. It got as low as $7.60 in 2002, mainly because investors feared it paid too much for its 2000 acquisition of wireless provider Clearnet. It then went on to a peak of $66 in September 2006. The final $12 of that rise happened after Telus announced that it planned to turn itself into an income trust. (Telus dropped its conversion plan after Ottawa decided to tax trust distributions.) But most of Telus’s gains since 2002 are due to the huge growth in its wireless business, which has helped offset slowing revenues at its traditional landline operations. Competition in the Canadian wireless industry will undoubtedly intensify in the next decade. But Telus’s ongoing investments in its wireless and traditional phone operations will give it a technological edge that will help fuel its long-term growth....

TRANSCANADA CORPORATION $37 (Toronto symbol TRP; SI Rating: Above average) has raised $1.7 billion in an issue of common shares. The company will use the cash to fund its $3.4 billion U.S. purchase of natural gas pipelines and storage facilities in Texas and several midwestern states. Dilution fears have hurt the stock in the past few weeks. The extra shares will cut the company’s 2007 earnings by roughly $0.05 a share; TransCanada earned $1.90 a share in 2006, excluding unusual items. But the steady cash flow from these new assets will help offset the dilution. TransCanada also received regulatory approval for a crucial part of its Keystone pipeline project, which would transport crude oil from Alberta to the U.S. Midwest. Keystone will cut TransCanada’s reliance on gas pipelines, and help it take advantage of expanding production in Alberta’s oil sands region....

BCE INC. $30 (Toronto symbol BCE) has completed the sale of its Telesat satellite business for $3.25 billion, or 13.5% of its market cap of $24 billion. The company will use $1.2 billion of that to buy back 5% of its stock. It will probably use the rest to expand its high-speed Internet service, or make acquisitions. It may also increase its $1.46 dividend (4.9% yield). Best Buy. EMERA INC. $21 (Toronto symbol EMA) has acquired a 19% stake in the main electrical utility on the Caribbean island of St. Lucia for $22 million U.S. That’s roughly a third more than the $19.5 million or $0.18 a share it earned in the third quarter of 2006. This is the company’s first investment in this region, but it cuts its reliance on Atlantic Canada. Best Buy. TORSTAR CORP. $19 (Toronto symbol TS.B) recently launched Olive Canada Network, a new service that makes it easier for advertisers to place ads on Torstar’s own web sites, as well as a wide variety of other online sites. The company hopes this new operation will expand revenue from its Internet operations, which now supply roughly 2% of its total revenue. Best Buy.

BCE INC. $30.94 (Toronto symbol BCE; SI Rating: Above-Average) is Canada’s largest provider of traditional telephone services, with over 12 million customers in Ontario and Quebec. It also provides Internet access (Sympatico), satellite TV (Bell ExpressVu) and wireless services (Bell Mobility). BCE continues to restructure its operations to focus on its core businesses. This includes an agreement to sell its Telesat Canada communications satellite subsidiary to a private group of investors. BCE also plans to change its name to Bell Canada. The company will probably use the cash to buy back stock, and fund new investments in its wireless and other businesses without taking on new debt. It will also help BCE maintain its $1.32 dividend, which now gives it a current yield of 4.3%....

MANITOBA TELECOM SERVICES INC. $44 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; SI Rating: Average) earned $0.52 a share from continuing operations, down 14.8% from $0.61 a year earlier. If you disregard restructuring costs, profits grew slightly. Revenue fell 5.9%, to $477.9 million from $507.7 million, due to strong competition in the local and long distance businesses. The stock fell 10% on news of Ottawa’s new plan to tax income trusts, but quickly recovered. That’s because bigger phone companies like BCE and Telus could use the accumulated losses of Manitoba Tel’s struggling Allstream business telecom division to cut their own tax bills. These losses expire in 2014. The company’s $2.60 dividend (5.9% yield) is also now more attractive to income-seeking investors. Manitoba Telecom is a buy.