canadian dividend

BMO DIVIDEND FUND $37.58 (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 43.3% of its portfolio in the Financial services industry. Its next-largest holding is Energy at 23.1%. The $3.7 billion BMO Dividend Fund’s largest holdings are Bank of Nova Scotia, CIBC, Royal Bank, Canadian National Railway, Manulife Financial, TD Bank, TransCanada Corporation, EnCana Corporation, Enbridge and Goldcorp. The fund’s MER is 1.71%. Over the five years to May 31, 2009, the fund posted a 3.7% annual rate of return. The S&P/TSX index returned 6.9% annually. The index gained from the big run up in resources prices that lasted until early in 2008. The S&P/TSX index holds a high 46% or so of its holdings in Resources stocks....

Hartford Canadian Dividend Growth Fund holds mostly large-capitalization, dividend-paying Canadian stocks. The fund is okay to hold. Hartford U.S. Dividend Growth Fund is okay to hold for U.S. exposure. Mackenzie Sentinel Income Fund is a balanced fund that holds 39.8% of its assets in stocks, 58.4% in bonds and 2.2% in cash. AGF World Balanced Fund is also a balanced fund. It holds 70% of its assets in stocks and 30% in bonds....

GENNUM CORP. $5.01 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.4 million; Market cap: $177.4 million; Price-to-sales ratio: 1.3; SI Rating: Above Average) gets 70% of its revenue by making equipment that stores, manipulates and transfers video signals. The other 30% comes from chips that improve the flow of data inside computer networks. The company focuses on designing products, and outsources most of its manufacturing to chipmakers in Asia. We’ve long recommended Gennum, partly for its high research spending, which is usually over 30% of its revenue. Last year, it started deferring some of its research costs related to certain products. Gennum will recognize these costs once it starts selling the products. However, the company operates in a highly competitive field, and there’s no guarantee of success. Deferring these research costs helps current earnings, but increases the risk of a future writedown against earnings. Gennum recently abandoned its friendly takeover bid for rival chipmaker Tundra Semiconductor Corp. (Toronto symbol TUN) after Tundra accepted a higher offer from a U.S. firm. However, Tundra paid Gennum a $5-million (Canadian) break-up fee. To put this figure in context, Gennum lost $800,000, or $0.02 a share, in its first quarter, which ended February 28, 2009. It earned $4.6 million, or $0.13 a share, a year earlier. (Gennum reports its results in U.S. dollars, but its share price and market cap are in Canadian funds). Foreign markets account for 85% of Gennum’s sales, which leaves it vulnerable to exchange rates. In the latest quarter, it lost $1.9-million on its currency-hedging contracts. Sales in the quarter fell 35.6%, to $19.4 million from $30.1 million. TV broadcasters, hurt by falling advertising revenue, have cut their spending on new equipment....

When we judge the investment quality of an individual company, we take nine key factors into account. These are: a record of profit; a record of dividends; an influential industry position; balance-sheet strength; geographical diversification; freedom from business cycles; freedom from excess regulation or insider abuse; ability to profit from lasting secular trends (such as global economic liberalization); and the ability to cash in on habitual customer behaviour. Mutual-fund ratings are more complex, since they are a step removed from these factors. Before we award our CWA Fund Ratings (Aggressive, Conservative or Income), we assess a fund’s strengths and weaknesses in several key areas. We start by looking at the quality of the fund’s holdings, based on our nine key factors. Then we look at the degree to which its holdings are spread out across the five main economic sectors: Manufacturing, Resources, Consumer, Finance and Utilities. Funds that focus on narrow segments are more risky or aggressive than those that diversify, even if they focus on a conservative area, such as Utilities....

RBC CANADIAN DIVIDEND FUND $37.65 (RBC Funds, P.O. Box 7500, Station A, Toronto, Ontario M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) invests in well-established, dividend-paying companies. In fact, it invests solely in common stocks. That’s why, despite the fund’s name, we rate it Conservative rather than Income. The $7.1-billion RBC Canadian Dividend Fund’s top stock holdings are: Royal Bank of Canada, Bank of Nova Scotia, TD Bank, Manulife Financial, Brookfield Asset Management, EnCana, Bank of Montreal, TransCanada Corp. and Power Corp. RBC Canadian Dividend is a Conservative buy.

We think investors will profit most — and with the least risk — by buying shares of well-established, dividend-paying companies with strong business prospects. These are companies that have strong positions in a healthy industry. They also have strong management that will make the right moves to remain competitive in a changing marketplace. A company with a long-term record of paying dividends gives investors a measure of safety. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake — either the company has the cash to pay them or it doesn’t. That’s not to say there won’t be surprises that affect every company in a particular industry. But well-established, dividend-paying stocks have the asset size and financial clout — including solid balance sheets and strong cash flow — to weather market downturns or changing industry conditions....

GENNUM CORP. $4.40 (Toronto symbol GND; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 35.6 million; Market cap: $156.6 million; Price-to-sales ratio: 1.0; SI Rating: Above Average) makes equipment that stores, manipulates and transfers video signals. Foreign markets account for 85% of its total sales. Gennum spends nearly 30% of its revenue on research, which helps it maintain its high share of this niche market. Gennum has $48.7 million, or $1.37 a share, in cash, and just $2 million in debt (all amounts in U.S. dollars except share price and market cap), so it can afford these research costs. In the year ended November 30, 2008, earnings rose 6.9%, to $0.62 a share, for a total of $22.0 million, from $0.58 a share ($20.9 million) a year earlier. These figures exclude unusual items. Sales grew 24.7%, to $126.9 million from $101.8 million....

The Canadian dollar will likely remain low relative to most major currencies for the next year or so. This is good news for CAE and Gennum, which get a high proportion their sales from the U.S. and overseas markets. (A low Canadian dollar enhances the contribution of international sales.) Their high research spending also makes them look less profitable than they really are. CAE INC. $7.39 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 254.9 million; Market cap: $1.9 billion; Price-to-sales ratio: 1.3; SI Rating: Average) is a leading maker of flight simulators. It also provides pilot-training services in 20 countries. CAE gets 90% of its revenue from customers outside of Canada. The slowing economy could hurt simulator demand from airlines, which operate in a cyclical industry. However, CAE’s growing military operations help cut its risk. In fact, the company recently won several new military-related contracts worth a total of $80 million. Military operations account for 45% of CAE’s revenue....

Canadian banks have recently issued new preferred shares to raise capital. To attract investors in a time of weak stock markets, they’ve issued these preferreds on especially attractive terms. The preferreds pay dividends that give them yields of 6.25% to 6.50%. That’s higher than current Government of Canada long-term bond yields of 4% or so. What’s more, preferred dividends are treated the same for tax purposes as dividends from common shares. So, after-tax yields on preferred shares are actually as much as 43% higher when you factor in the Canadian dividend tax credit....

BMO DIVIDEND FUND $34.97 (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 35.1% of its portfolio in the Financial services industry. Its next-largest holding is Energy at 21.1%. The $3.7 billion BMO Dividend Fund’s largest holdings are Manulife Financial, Bank of Nova Scotia, CIBC, Royal Bank, Shoppers Drug Mart, TD Bank, TransCanada Corp., EnCana, Enbridge and Shaw Communications. The fund’s MER is 1.71%. Over the five years to November 30, 2008, the fund posted a 4.6% annual rate of return. The S&P/TSX gained 5.7% annually, but that was largely due to the big run up in resources prices that lasted until early in 2008. The S&P/TSX index holds a high 40% or so of its holdings in Resources stocks....