pengrowth

Three of Canada’s big-five banks, BANK OF NOVA SCOTIA, $58.49, Toronto symbol BNS, CANADIAN IMPERIAL BANK OF COMMERCE, $84.40, Toronto symbol CM, and TORONTO-DOMINION BANK, $84.15, Toronto symbol TD, have joined a new consortium called Maple Group Acquisition Corp. Other members of this group include National Bank and five major pension funds. Maple wants to buy a controlling interest in TMX Group Inc. (Toronto symbol X), which operates the Toronto Stock Exchange, the TSX Venture Exchange and the Montreal Exchange. In February 2011, TMX accepted a takeover offer from the London Stock Exchange Group. Under the terms of that offer, TMX shareholders would own 45% of the combined company, which would be the world’s second-largest stock exchange by market cap....

PENGROWTH ENERGY $13.40 (Toronto symbol PGF; Shares outstanding: 320.1 million; Market cap: $4.3 billion; TSINetwork Rating: Average; Dividend yield: 6.3%; www.pengrowth.com) reported that its cash flow rose 9.9% in 2010, to $606.0 million from $551.4 million in 2009. Cash flow per share fell 3.8%, to $2.01 from $2.09, on more shares outstanding. The gain was mainly due to a 6.8% rise in the average price the company received per barrel of oil equivalent (including natural gas). That offset a 6.1% drop in its average daily production after it sold some properties in 2009. Natural gas accounted for 62% of Pengrowth’s 2010 production. Oil provided the remaining 38%. Gas prices haven’t matched rising oil prices over the last couple of years. Still, high oil prices could prompt industrial users to switch to gas. As well, new pipelines are being planned for the Rocky Mountains. That would help Pengrowth ship more gas to Asia....

PENGROWTH ENERGY CORP. $12 (Toronto symbol PGF; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 326.0 million; Market cap: $3.9 billion; Price-to-sales ratio: 2.4; Dividend yield: 7.0%; TSINetwork Rating: Average; www.pengrowth.com) produces oil and natural gas from properties in Alberta, B.C. and Saskatchewan. Natural gas accounted for 62% of Pengrowth’s production in 2010. Oil provided the remaining 38%. In 2010, Pengrowth’s cash flow rose 9.9%, to $606.0 million from $551.4 million in 2009. However, cash flow per share fell 3.8%, to $2.01 from $2.09, on more shares outstanding. The gain was mainly due to a 6.8% rise in the average price the company received per barrel of oil equivalent (including natural gas). That offset a 6.1% drop in its average daily production after it sold some properties in 2009. Low natural gas prices have held back the stock in the past few weeks, even as oil prices jumped in response to the turmoil in the Middle East....

I think the political turmoil in the Arab world will eventually turn out to be a good thing for the world economy and stock markets. However, it definitely raises the already high political risk for foreign companies, including oil and gas firms, operating in those countries. In Canadian Wealth Advisor, we’ve long emphasized oil and gas stocks with a strong base of growing operations in Canada and the U.S. That not only eliminates political risk, but lets them profit when turmoil elsewhere pushes up oil and gas prices. Here are six top favourites:...

These two former income trusts recently converted to corporations in response to Ottawa’s tax on income-trust distributions. That means they must now pay corporate taxes. Even so, their high payouts (which are now dividends) seem secure. PENGROWTH ENERGY CORP. $12 (Toronto symbol PGF; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 326.0 million; Market cap: $3.9 billion; Price-to-sales ratio: 2.4; Dividend yield: 7.0%; TSINetwork Rating: Average; www.pengrowth.com) is the new name of Pengrowth Energy Trust. It produces oil and natural gas from properties in Alberta, B.C. and Saskatchewan. Pengrowth also holds interests in other energy projects, such as its 8.4% stake in the Sable Offshore Energy Project, which operates three offshore-drilling platforms south of Nova Scotia. Roughly 60% of the company’s production is natural gas. The remaining 40% is oil. Low gas prices have hurt Pengrowth’s earnings and held back its cash flow. However, it has locked in prices for 23% of its 2011 daily production at $5.72 per thousand cubic feet. That’s higher than today’s price of $4.30. Pengrowth focuses on proven properties with large reserves and predictable production. That helps cut its risk....

PENGROWTH ENERGY CORP. $12.66 (Toronto symbol PGF; Shares outstanding: 320.1 million; Market cap: $4.1 billion; TSINetwork Rating: Average; Dividend yield: 6.7%; www.pengrowth.com) is the new name for Pengrowth Energy Trust after it converted to a dividend-paying corporation on January 1, 2011. Pengrowth has large tax pools it can use to offset the new taxes. That will let it keep its monthly payout at $0.07 a share, for an annualized yield of 6.6%. The monthly payout will be in the form of a dividend. That means investors who hold Pengrowth outside an RRSP will benefit from the dividend tax credit. Pengrowth is still a buy.

INDIGO BOOKS & MUSIC INC. $15 (www.chapters.indigo.ca) continues to see strong demand for its Kobo e-book downloading service. During the 2010 Christmas shopping season, the company’s e-book sales were 50 times higher than a year earlier. Kobo now has customers in over 130 countries. Hold. TIM HORTONS INC. $43 (www.timhortons.com) recently opened a new online store that ships its coffee, tea, travel mugs and other items to all 50 U.S. states. This will mainly appeal to Canadians living in the U.S., but it does give the company a cheap way to expand its U.S. sales. Best Buy. PENGROWTH ENERGY CORP. $13 (www.pengrowth.com) is the new name for Pengrowth Energy Trust (old symbol PGF.UN) after its conversion to a dividend-paying corporation on January 1, 2011. Pengrowth has large tax pools it can use to offset the new taxes. That will let it keep its monthly payout at $0.07 a share, for an annualized yield of 7.7%. Best Buy....

PENGROWTH ENERGY TRUST $12.96 (Toronto symbol PGF.UN; Units outstanding: 320.1 million; Market cap: $4.1 billion; TSINetwork Rating: Average; Divid. yield: 6.5%; www.pengrowth.com) will convert to a dividend-paying corporation on January 17, 2011. It will then trade as Pengrowth Energy Corporation under the symbol “PGH”. Pengrowth has $2.7 billion of tax pools it can use to offset income taxes. It expects to be able to delay paying taxes until after 2014. That will let Pengrowth keep paying $0.07 a month (it now yields 6.5%). Starting with the February 15, 2011, payment, the monthly payout will be in the form of a dividend. That means investors who hold Pengrowth outside an RRSP will benefit from the dividend tax credit....

IMPERIAL OIL $37.45 (Toronto symbol IMO; Shares outstanding: 847.6 million; Market cap: $31.7 billion; TSINetwork Rating: Average; Dividend yield: 1.2%; www.imperialoil.com) owns 70% of the massive Kearl oil-sands project in Alberta. Imperial’s parent company, ExxonMobil Corp. owns the remaining 30%. It will cost a total of $8 billion to bring Kearl into operation. Imperial’s share is $5.6 billion. Imperial has made some changes to this project. That will add to Kearl’s initial costs, but will raise its expected production by 5%. Meanwhile, Imperial’s earnings fell 23.6% in the three months ended September 30, 2010, to $418 million, or $0.49 a share. A year earlier, it earned $547 million, or $0.64 a share. Planned maintenance at Imperial’s oil-sands operations pushed down production by 7.0% in the latest quarter. That was the main reason for the earnings drop....

In the past few years, Telus has invested heavily in its wireless networks. These upgrades have been costly, but they are paying off, particularly as more people use mobile devices to access the Internet. The shift to wireless has forced Telus to restructure its traditional phone business. One-time costs, including severance payments, have held back its earnings in the past two years. The company has completed most of these changes, so its earnings should start rising again. As well, its improving outlook is freeing up more cash for dividends. TELUS CORP. (Toronto symbols T $45 and T.A $43; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 320.7 million; Market cap: $14.4 billion; Price-to-sales ratio: 1.5; Dividend yield: 4.7%; TSINetwork Rating: Above Average; www.telus.com) is Canada’s second-largest telephone company after BCE Inc. (Toronto symbol BCE, see Updating BCE Inc., Royal Bank of Canada and Pengrowth Energy Trust)....