royal bank

Exchange-traded funds (ETFs) are one of the more benign financial innovations to come along in the past few years. ETFs are set up to mirror the performance of a stock-market index or sub-index. They hold a more-or-less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. Investors can buy them on margin or sell them short. The best ETFs offer well diversified, tax-efficient portfolios with exceptionally low management fees....

TORSTAR CORP., $9.03, Toronto symbol TS.B, rose 40% this week. That’s because the company reported greatly improved results. In 2009, Torstar earned $35.6 million, or $0.45 a share. That’s a big improvement over the $158.7 million, or $2.01 a share, it lost in 2008. However, the 2008 results included a $136.9-million writedown of Torstar’s 20% stake in CTVglobemedia, which owns the CTV television network, several specialty-TV channels and The Globe and Mail. If you exclude all unusual items, per-share earnings fell 4.3%, to $0.66 from $0.69. That beat the consensus earnings estimate of $0.64 a share. Torstar’s 2009 revenue fell 5.4%, to $1.45 billion from $1.53 billion. Revenue at the newspaper division (which accounts for 66% of Torstar’s total revenue) fell 9.7%. However, revenue at the Harlequin book-publishing division (34% of revenue) rose 4.3%....

Exchange-traded funds (ETFs) may have a place in your portfolio. That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of them. Instead, they give you a low-cost, flexible, convenient alternative to mutual funds. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell ETFs, but you will quickly make these back because of the low management fees. Shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital-gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders....

KRAFT FOODS INC., $28.92, New York symbol KFT, is close to completing its purchase of U.K.-based Cadbury plc (New York symbol CBY). Cadbury is a leading maker of confectioneries, including chocolate, candy and gum. Investors who hold over 90% of Cadbury’s shares have tendered their holdings to Kraft’s offer. In all, Kraft is paying $19.4 billion in cash and shares. It expects to complete this takeover within the next two months. Meanwhile, Kraft earned $3.0 billion in 2009. That’s up 63.9% from $1.8 billion in 2008. Earnings per share rose 67.8%, to $2.03 from $1.21, on fewer shares outstanding. However, the 2008 earnings were depressed by $1.0 billion of writedowns and costs related to Kraft’s three-year restructuring plan, which it recently completed. The plan included selling or discontinuing less-profitable brands, closing plants and cutting jobs....

Dividend 15 Split Corp., $11.69, symbol DFN on Toronto (Shares outstanding: 11.2 million; Market cap: $131.2 million), is a split-share investment corporation that holds shares of 15 companies: BCE Inc., CI Financial Corporation, AGF Management, TransAlta Corporation, SunLife Financial, Canadian Imperial Bank of Commerce, TransCanada Corporation, Manulife Financial, TD Bank, TMX Group, Royal Bank of Canada, Loblaw, Bank of Montreal, Telus Corporation and Enbridge. The company can also invest up to 15% of its portfolio in other equity issues. Dividend 15 Split Corp. has two share classes: Dividend 15 Split Corp. capital shares (Toronto symbol DFN), and Dividend 15 Split Corp. preferred shares (Toronto symbol DFN.PR.A)....

ISHARES DIVIDEND INDEX FUND $18.40 (Toronto symbol XDV; buy or sell through a broker) holds the 30 highest-yielding Canadian stocks based on dividend growth, yield and average payout ratio. The weight of any one stock is limited to 10% of of the fund’s assets. The fund’s MER is 0.50%. iShares Dividend Index Fund has a 3.7% yield. Top holdings are CIBC, 7.3%; Bank of Montreal, 6.3%; Manitoba Tel, 5.7%; National Bank, 5.5%; TD Bank, 5.3%; IGM Financial, 4.5%; Royal Bank, 4.4%; Bank of Nova Scotia, 4.3%; Telus, 4.2%; Sun Life, 3.6%; Power Financial, 3.4%; and TransCanada Corp., 3.4%....

We recommended five newly issued bank preferreds in our February 2009 issue. The big five Canadian banks issued these preferreds on especially attractive terms to attract investors in a time of weak stock markets. Despite rising over 10% in price, their yields are still high. As well, holders can reset the dividends at higher rates in 2014 if interest rates rise. However, the banks have the right to buy back all five shares at $25 each in 2014. In that case, you’d have a capital loss if you bought them at today’s prices. The banks may choose to buy them back if interest rates stay low and bank credit quality remains high. That would let them issue new preferreds at lower rates. All five preferreds are worth holding, but we don’t recommend them as buys at today’s prices....

One part of our three-pronged investing program is to spread your money out across the five main stock sectors of the economy (Manufacturing & Industry; Resources; Consumer; Finance; Utilities). (The other two parts are to hold mostly high-quality, dividend paying stocks, and downplay stocks in the broker/public-relations limelight.)

How we place stocks in the appropriate stock sectors

Many stocks clearly fit in certain stock sectors. Royal Bank, for example, obviously goes in the Finance sector. But sometimes correctly categorizing a stock requires a judgment call. That’s the case with La-Z-Boy Inc. (symbol LZB on New York). We update our buy/sell/hold advice on La-Z-Boy in the current issue of Wall Street Stock Forecaster, our newsletter that focuses on U.S. stocks. See below for further details on this rapidly changing company.

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Claymore 1-5 Yr Laddered Corporate Bond ETF, $20.82, symbol CBO on Toronto (Units outstanding: 20.5 million; Market cap: $426.8 million), invests in a portfolio of short-term bonds drawn from the DEX (formerly Scotia Capital) Bond Index. The ETF first sold units to the public at $20 each, and began trading on Toronto on February 25, 2009. The fund’s 25 holdings are divided into five staggered, or “laddered,” maturities that generally range from one to five years. Each maturity is equally weighted and includes five or more bonds with a minimum credit rating of “A.” Each year, the two-year to five-year bonds will be a year closer to maturity and one-year bonds will reach maturity. The fund will use proceeds of the matured bonds to “roll over” or buy new bonds that restore the desired one-to-five year portfolio balance....

ROYAL BANK OF CANADA $56 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $78.4 billion; Price-to-sales ratio: 2.1; Dividend yield: 3.6%; SI Rating: Above Average) is Canada’s largest bank, with total assets of $655.0 billion. Royal is seeing strong demand for loans because of low interest rates. As well, improving financial markets have helped its capital-markets division attract new business. This division, which Royal has steadily expanded in the past few years, helps companies raise capital by selling shares and issuing debt. It now provides 25% of the bank’s total revenue. In the year ended October 31, 2009, Royal’s revenue rose 34.9%, to $29.1 billion from $21.6 billion in the prior year. Earnings rose 6.7%, to $4.9 billion from $4.4 billion. However, earnings per share fell 3.0%, to $3.28 from $3.38, on 7% more shares outstanding. The 2009 figures exclude a $1-billion writedown of goodwill related to Royal’s U.S. operations. Its U.S. and international banking division supplies roughly 10% of its revenue....