dividend tax credit
Gaz Metro LP, $16.27, symbol GZM.UN on Toronto (Units outstanding: 120.5 million: Market cap: $2.0 billion), mainly distributes natural gas in Quebec and Vermont. Gaz Metro is the largest gas distributor in Quebec, where it has 1,300 employees and serves 180,000 customers through an underground pipeline network of almost 10,000 kilometres. Gaz Metro sells 90% of its gas to commercial customers; homeowners account for the remaining 10%. It also owns interests in pipelines and underground storage sites in the province. Gaz Metro is the only natural-gas distributor in Vermont. It has 320 employees in the state. It also owns Green Mountain Power Corp., Vermont’s second-largest electricity distributor....
BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $25.47 (Toronto symbol BA.UN: Units outstanding: 127.3 million; Market cap: $3.2 billion; SI Rating: Above Average; Yield: 11.4%) provides traditional land-line phone service in Atlantic Canada and rural parts of Ontario and Quebec. The trust will revert to regular corporate status before January 1, 2011. This will force it to pay income taxes, so its yield of 11.4% will shrink, even after allowing for the dividend tax credit. But its yield will stay well above BCE’s. As part of the 2006 deal that created the trust, Bell Aliant transferred its wireless operations to BCE (which owns 45% of Bell Aliant). This cut into Bell Aliant’s growth....
We take many different factors into account before we award a stock one of our Successful Investor Ratings (Highest Quality, Above Average, Average and Extra Risk). You’ll find our ratings displayed next to every stock we recommend in our newsletters — including our flagship publication, The Successful Investor. They’re designed to help you quickly and easily identify companies that have the ability to survive a business setback and go on to greater success when conditions improve. Here are three factors we take into consideration before awarding a rating. We think they can help you improve your returns and lower your risk when you invest in the stock market:...
Investors often ask us for our opinion on borrowing money to invest in stocks. We think that borrowing to make stock market investments can be a good strategy for some investors under certain circumstances. You’ll benefit most from this strategy by sticking with well-established, dividend-paying stocks, like the ones we recommend in our Canadian Wealth Advisor newsletter. Here are 3 ways you can benefit from borrowing to invest. (We’ve also compiled a list of 6 ways to tell if your personal circumstances favour this strategy. See below.)
- Today’s low interest rates favour borrowing to invest: Today, you can borrow for as little as 3.25% if you use your home as collateral. Over long periods, the total return on a well-diversified portfolio of high-quality stock market investments runs to as much as 10%, or around 7.5% after inflation. So you can expect to earn more than your borrowing cost.
- You can use your dividends to pay your investment loan interest: If you borrow to buy well-established, dividend-paying stocks (or mutual funds that invest in these stocks), like those we recommend in our Canadian Wealth Advisor newsletter, these investments will give you regular dividend income and cash flow to pay the interest on your investment loan.
- Borrowing to invest can cut your tax bill: Borrowing to invest can be a highly effective tax shelter. That’s because you can deduct 100% of your interest expense against your current income. Plus, the investment income you earn comes with three key tax advantages: you get the dividend tax credit on qualified Canadian stocks and you only pay tax on 50% of your capital gains....
We think investors will profit most — and with the least risk — by buying shares of well-established, dividend-paying stocks with strong business prospects. These are companies that have strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace. Here are 3 ways dividend paying stocks can help improve your portfolio’s long-term returns:...
BELL ALIANT REGIONAL COMMUNICATIONS INCOME FUND $25 (Toronto symbol BA.UN; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 228.4 million; Market cap: $5.7 billion; Price-to-sales ratio: 1.8; Dividend yield: 11.6%; SI Rating: Above Average) provides telephone services in Atlantic Canada, as well as rural parts of Ontario and Quebec. As part of the deal that created the trust in 2006, Bell Aliant transferred its wireless operations to BCE, which owns 45% of the trust. Bell Aliant earned $373.0 million in 2009. That’s up 10.8% from $336.6 million in 2008. Earnings per unit rose 11.5%, to $2.33 from $2.09, on more units outstanding....
Canada’s big telephone companies have faced strong competition from cable companies for years. This experience will help them deal with three new entrants in the wireless field. One of these new competitors, Wind Mobile, is already operating. Two more, Mobilicity and Public Mobile, should launch later this year. Meanwhile, all four major phone companies are using their steady cash flows to expand and improve their wireless and high-speed Internet networks. That will fuel their long-term growth, and let them keep paying or raise their current dividends. BCE INC. $29 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 767.2 million; Market cap: $22.2 billion; Price-to-sales ratio: 1.3; Dividend yield: 6.0%; SI Rating: Above Average) provides telephone and Internet services in Ontario and Quebec. It also sells wireless and satellite TV services across Canada....
INNERGEX POWER INCOME FUND $10.74 (Toronto symbol IEF.UN; Shares outstanding: 29.4 million; Market cap: $315.8 million; SI Rating: Extra Risk; Dividend yield 9.3%) plans to convert to a corporation by merging with Innergex Renewable Resources (Toronto symbol INE). Innergex Power unitholders will get 1.46 shares of the new company. The combined company will own 326 megawatts of power capacity, with 128 additional megawatts starting up over the next two years. Hydroelectric plants will generate about 73% of its power, and 27% will come from wind farms. The combined company has contracts averaging 17 years in place for all of its production. The new company will pay a dividend of $0.85 a year, down from the current distribution of $1.00 a year. However, after factoring in the Canadian dividend tax credit, the after-tax return for unitholders will be roughly the same....
Ottawa’s new tax on income trusts comes into effect just over a year from now, on January 1, 2011. When it does, it will put trusts on an equal footing with regular corporations. Right now, 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. The new tax will eliminate these income-tax benefits. That will prompt some income trusts to convert to conventional corporations. Others may choose to remain as trusts. (For our latest advice on income trust investing, and how trusts should fit into your overall portfolio, be sure to download our free report, “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada.”)...
FORT CHICAGO ENERGY PARTNERS L.P. $10.05 (Toronto symbol FCE.UN; Units outstanding: 137.9 million; Market cap: $1.4 billion; SI Rating: Extra Risk) has announced that it plans to convert to a dividend-paying corporation before Ottawa starts taxing income trusts on January 1, 2011. The trust’s conversion will likely take place in the fourth quarter of 2010. Fort Chicago owns and operates energy infrastructure across North America. One of its major holdings is a 50% interest in the Alliance natural-gas pipeline, which runs 3,000 kilometres from Fort St. John, B.C., to Chicago. Enbridge Inc. owns the other 50%. Unitholders will be able to exchange their units for common shares of the new corporation on a tax-deferred basis — you won’t pay capital gains tax until you sell....