high dividend

The volatile markets of the past few years have offered up many tempting stocks at bargain prices. But it’s important to remember that not all bargain stocks are created equal. Investment success depends more on the quality of your investments than on the price you pay for them. That’s why you have to be very selective about which undervalued stocks you buy....

Sweeping up after the 1929 Crash


Today, many investors might not immediately recognize the name of master investor John Templeton. In the final quarter of the last century, however, Templeton was as famous and highly regarded as Warren Buffett is today. ...

Capstone Infrastructure Corp., $6.52, symbol CSE on Toronto (Shares outstanding: 61.8 million; Market cap: $372.2 million, www.capstoneinfrastructure.com), is a renewable power producer that is capable of generating 336 megawatts per year. The company also owns 33% of a heating plant, and aims to grow in infrastructure and other regulated sectors. Capstone continues to grow by acquisition. That adds risk, especially because its acquisitions have included purchases in higher-risk sectors, such as renewable power. Moreover, the company has bought firms as far away as Sweden. Capstone trades at 11.0 times this year’s forecast cash flow per share of $0.58. The stock yields a high 10.1%, but the company expects to pay out 120% of its cash flow as dividends this year. It hopes to get that down to 85% to 90% next year, but the high dividend may not be sustainable....

Medical Facilities Corp., symbol DR owns majority interests in four specialty surgical hospitals located in South Dakota & Oklahoma

Medical Facilities Corp., $10, symbol DR on Toronto (Shares outstanding: 28.4 million; Market cap: $284.0 million, www.medicalfacilitiescorp.ca), owns majority interests in four specialty surgical hospitals located in South Dakota and Oklahoma, as well as an ambulatory surgery centre in California. The specialty hospitals perform scheduled surgical, imaging and diagnostic procedures. Their revenue comes from fees they charge for the use of their facilities. The ambulatory surgery center specializes in outpatient surgical procedures. Patients typically stay in this facility for less than 24 hours. In the three months ended June 30, 2011, Medical Facilities’ revenue rose 6.2%, to $54.3 million from $51.2 million (all figures except share price and market cap in U.S. dollars). Cash flow per share rose 6.3%, to $0.34 from $0.32....

PetroBakken Energy, $10.97, symbol PBN on Toronto (Shares outstanding: 216.0 million; Market cap: $2.1 billion; www.petrobakken.com), produces and explores for oil, mainly in the Cardium area of west-central Alberta and the Bakken region of southeastern Saskatchewan. The Bakken formation covers parts of Montana, North Dakota and Saskatchewan, and could contain up to 500 billion barrels of oil or more. Oil was first discovered at Bakken in 1951, but it has always been hard to extract the oil from the rock. However, modern techniques, such as horizontal (or slant) drilling have made it easier to access hard-to reach deposits like those at Bakken....

During times of market turbulence like we’ve seen in the past few days, it’s easy for investors to panic and make mistakes. Here are three common ones we’ve noticed over the years:

1. Overanalyzing: During the recent market turbulence, the media has been full of economic statistics and analyses of government economic policies. You may feel tempted to try to figure out what the economy will do next, and invest accordingly. But economic forecasting is hard enough. When you try to forecast market trends based on economic forecasts, you are virtually certain to fail. As Peter Lynch (the world’s top mutual-fund manager from the 1970s through the early 1990s) wrote, if you spend 12 minutes a year worrying about the economy, you’ve wasted 10 minutes.
   Our general view is that if the U.S. tries to tax its way out of the economic hole it’s in, it might relieve uncertainty about its debt, but it would also depress growth potential. That’s because higher taxes would further scare off business investment. We could fall into 1970s-style stagflation—high interest rates, weak growth and high unemployment....

Pengrowth quickly became Canada’s largest oil and gas income trust after it was formed in 1989. As a trust, it paid out most of its cash flow to its unitholders. That left it with little to invest in exploration or growth projects. At the start of 2011, Pengrowth converted to a corporation in response to the federal government’s new tax on income-trust distributions, which came into effect on January 1 of this year. Unitholders received one common share for each unit they held. Now that it is a corporation, Pengrowth is using some of the cash from its conventional properties to expand into more risky areas, such as oil sands and shale gas. However, these projects have strong long-term potential, and their cash flows will help Pengrowth maintain its high dividend yield....

When picking high dividend stocks, we continue to recommend that you look beyond yield (dividend rate divided by share price). Instead, focus on high-quality companies with long histories of rising payouts, such as these four utilities (including Canadian Utilities, see box on page 74). Their steady cash flows are helping them maintain or raise their dividends, and invest in new growth projects. FORTIS INC. $32 (Toronto symbol FTS; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 196.8 million; Market cap: $6.3 billion; Price-to-sales ratio: 1.5; Dividend yield: 3.6%; TSINetwork Rating: Above Average; www.fortisinc.com) is the main supplier of electrical power in Newfoundland and Prince Edward Island. It also operates power plants in other parts of Canada, as well as the U.S., Belize and the Cayman Islands. In addition, Fortis operates hotels and other businesses in Canada. The company has been working to lower its reliance on Atlantic Canada. In May 2004, it bought regulated electrical utilities in Alberta and B.C. for $1.5 billion in cash and stock. In May 2007, it paid $3.7 billion for the regulated gas-distribution business of Terasen Inc. (now called FortisBC Energy), which has 940,000 customers in B.C. Fortis issued $1.15 billion of shares to help pay for this purchase....

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