imperial oil

Despite a stream of nerve-rattling financial news, starting with the failure of the first U.S. bailout package, the Dow Industrials and the S&P 500 managed to hold above Monday’s lows this week until just before Friday’s close. It’s a mistake to read too much into this, of course. But it is encouraging to see these two indexes move sideways in this depressing news environment. The plunge to new lows by the Canadian market reflects the heavy resources content in our economy and stock market. The Resources sector stands to suffer in an economic setback, and that’s already begun to happen with the drop in oil, copper and other metals. In addition to the decline in our market, our dollar lost nearly four cents this past week, relative to the U.S. dollar. We continue to recommend that you spread your investments our across the five main economic sectors, and devote around a quarter of your portfolio to U.S. stocks. Market turnarounds often occur in times of high volatility and bad news. Our advice is to resist any urge you may feel to sell good-quality stocks, just because you fear they may go lower....

IMPERIAL OIL LTD. $49 (Toronto symbol IMO; Conservative Growth Portfolio, Resource stocks sector; Shares outstanding: 882.1 million; Market cap: $43.2 billion; SI Rating: Average) is a leader in resource stocks, producing roughly 6% of Canada’s oil and gas. The company also operates oil refineries, plus around 1,900 retail gas stations under the ‘Esso’ banner. ExxonMobil Corp. owns 69.6% of Imperial’s stock. Imperial currently gets over 60% of its production from Alberta’s oil sands. It owns 25% of the massive Syncrude project, whose reserves should last 28 years at current production rates. Imperial also owns 100% of the Cold Lake oil sands project. Cold Lake should last 13 more years. ...

BMO DIVIDEND FUND $44.99 (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 36.3% of its portfolio in the Financial services industry. Its next-largest holdings are Energy at 24.4% and Consumer discretionary at 9.1%. BMO Dividend Fund’s largest holdings are Manulife Financial, Bank of Nova Scotia, CIBC, Royal Bank of Canada, Power Financial Corporation, Toronto-Dominion Bank, TransCanada Corporation, Imperial Oil, Suncor Energy, EnCana Corporation, Enbridge Inc., Husky Energy and Sun Life Financial. Over the last five years, the $5.2 billion BMO Dividend Fund has posted a 12.1% annual rate of return. That’s under the S&P/TSX’s gain of 18.2%. However, the S&P/TSX index held a high 40% or so of its holdings in Resources shares. That’s been one of the best-performing, although riskiest, sectors. The fund lost 5.6% over the last year, compared to a gain of 6.8% for the S&P/TSX index. BMO Dividend’s MER is 1.71%....

BMO Dividend and RBC Canadian Dividend hold mostly high-quality stocks. Even high-quality stocks sometimes run into 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, at least in Canada. 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....

IMPERIAL OIL $55.04 (Toronto symbol IMO; SI Rating: Average) is Canada’s largest integrated oil company. Imperial also operates 2,000 retail gas stations under the “Esso” banner. ExxonMobil Corp. owns 69.6% of Imperial’s stock. In the three months ended March 31, 2008, earnings per share fell 6.2%, to $0.75 from $0.81, due to problems at its Edmonton refinery. Imperial is now expanding its four refineries to handle rising oil sands output. Revenues rose 22.4%, to $7.3 billion from $5.9 billion. Imperial’s cash flow fell 15.1%, to $786 million from $926 million in the latest quarter. Cash flow per share fell just 10.3%, to $0.87 from $0.97, due to continued aggressive stock buybacks. The company bought back $590 million of its stock in the latest quarter....

Imperial Oil has gone way up for us, although we think it still has appeal. Even so, our advice is to maintain 15% to 25% exposure to the Resources sector — resist the urge to invest much more in this volatile sector. As well, combine Imperial with stable oil and gas trusts to cut your risk. IMPERIAL OIL $55.04 (Toronto symbol IMO; SI Rating: Average) is Canada’s largest integrated oil company. Imperial also operates 2,000 retail gas stations under the “Esso” banner. ExxonMobil Corp. owns 69.6% of Imperial’s stock. In the three months ended March 31, 2008, earnings per share fell 6.2%, to $0.75 from $0.81, due to problems at its Edmonton refinery. Imperial is now expanding its four refineries to handle rising oil sands output. Revenues rose 22.4%, to $7.3 billion from $5.9 billion....

IMPERIAL OIL LTD. $59 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 892.0 million; Market cap: $52.6 billion; SI Rating: Average) can resume work on its Kearl Lake oil sands project. The company suspended development earlier this year after regulators withdrew a key permit, but Ottawa gave Imperial a new permit. Imperial owns 70% of Kearl Lake, while its parent company ExxonMobil owns the other 30%. Imperial’s share of the $8 billion cost is $5.6 billion, or 1.8 times the $3.2 billion or $3.41 a share it earned in 2007. The company will probably have to spend more to comply with tougher environmental regulations. However, Kearl Lake could still begin production in 2011 as originally planned. Imperial Oil is a buy.

BANK OF NOVA SCOTIA $51.41 (Toronto symbol BNS: SI Rating: Above average) earned $980 million in its second fiscal quarter ended April 30, 2008, down 5.8% from $1.04 billion a year earlier. Per-share earnings fell 5.8%, to $0.97 from $1.03. The declines were largely due to higher provisions for loan losses, which jumped to $153 million from an unusually low $20 million in the year-earlier quarter. Revenue rose 3.2%, to $3.2 billion from $3.1 billion, partly due to acquisitions. The bank has increased its quarterly dividend 4.3%, from $0.47 a share to $0.49. The new annual rate of $1.96 yields 3.8%. Bank of Nova Scotia is a buy....

TORSTAR CORP. $13 (Toronto symbol TS.B) plans to restructure its newspaper operations. This will cost it $21 million, but should produce annual savings of $12 million. To put that in context, Torstar lost $0.04 a share (total $3.5 million) in the first quarter of 2008 largely from these restructuring costs. It earned $0.20 a share ($15.7 million) in the year-earlier quarter. Revenue fell 6.8%, due to slowing advertising revenue in Ontario. However, Torstar’s expanding Internet operations help diversify its revenues. Best Buy. MANITOBA TELECOM SERVICES INC. $41 (Toronto symbol MBT) earned $0.84 a share before unusual items in the first three months of 2008, up 5.0% from $0.80 a year earlier. Strong growth from its wireless, TV and Internet services will help the company offset lower revenue from its traditional phone operations, and help it keep paying its $2.60 dividend (6.3% yield). Best Buy. IMPERIAL OIL LTD. $57 (Toronto symbol IMO) earned $0.75 a share in the latest quarter, down 7.4% from $0.81 a year earlier, due to production problems at its Edmonton refinery. Imperial is now expanding its four refineries to handle rising oil sands production. Best Buy...

BCE INC. $33.60, Toronto symbol BCE, fell sharply this week after Quebec’s Supreme Court ruled in favour of a lawsuit launched by the company’s bondholders to block the takeover. The bondholders felt it reduced the security of their investments. BCE and the Ontario Teachers’ Pension Plan, which heads a private group that has agreed to buy BCE for $42.75 a share, plan to appeal this ruling to the Supreme Court of Canada. That will likely delay the takeover beyond the June 30, 2008 target date. It could also force the consortium to re-price or scrap the takeover. Depending on the circumstances, BCE may receive a $1 billion or $1.24 a share break-up fee from the consortium if the deal falls through. That’s equal to 3% of its market cap of $30 billion. The company could use that cash to expand its wireless and high-speed Internet services, or increase its $1.46 dividend (4.3% yield). BCE could also unlock some of its value by spinning off some of its operations....