royal bank

TORONTO-DOMINION BANK $64 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 858.8 million; Market cap: $55.0 billion; Price-to-sales ratio: 2.2; Dividend yield: 3.8%; SI Rating: Above Average) is the second-largest Canadian bank, with total assets of $557.2 billion. TD has now fully integrated Commerce Bancorp Inc. with its other U.S. banking operations. The bank paid $8.5 billion for Commerce in May 2008. It now operates as “TD Bank,” and has 1,028 branches from Maine to Florida. The U.S. banking business provides 16% of TD’s overall profits. If you include $276-million in integration costs and $576-million of writedowns of securities, TD’s earnings in the year ended October 31, 2009, fell 18.6%, to $3.1 billion from $3.8 billion in the prior year. Earnings per share fell 28.7%, to $3.47 from $4.87, on more shares outstanding. Revenue rose 21.8%, to $17.9 billion from $14.7 billion, as low interest rates spurred strong demand for new loans....

Things are going well for Canada’s big five banks. Low interest rates continue to spur strong demand for new loans. As well, loan defaults should fall as the economy improves. Despite strong gains in their stock prices since last March’s lows, all five continue to trade at attractive multiples to earnings. Canadian and international banking regulators are working on new rules that will help the global banking industry avoid another credit crisis. In response, Canada’s banks are prudently conserving their cash instead of raising dividends. We feel the banks will resume their pattern of annual dividend hikes when the new rules take effect in 2011. Every investor should aim to hold at least two banks in the Finance segment of their portfolio. Bank of Nova Scotia, which has a strong presence in fast-growing regions, such as Asia and Latin America, remains our favourite for new buying....

It’s particularly easy for investors to make costly mistakes during the year-end tax-loss selling season. That’s because the lure of a lower tax bill can be a temptation to dump high-quality stocks that are near the end of a downturn, and are set to move back up. A similar pitfall exists during the end-of-the-year rush to take advantage of certain tax shelters, including charitable donations. In our view, you should be as selective about giving money to charity as you are about buying stocks. In fact, bad charities tend to have something in common with bad stocks.

Examine a charity’s “business plan” before donating

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Investors are paying more attention to dividend yields (a company’s total annual dividends paid per share divided by the current stock price) as volatile stock markets continue to recover. Companies are responding by doing their best to maintain, or even increase, their dividend payments. That’s good news for investors, because dividends are more dependable than capital gains as a source of income. In fact, dividends typically contribute up to a third of an investor’s long-term return. Tax cuts in recent years also mean that you pay roughly the same tax on dividend income and capital gains.

Look at the complete picture when buying high dividend stocks

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GREAT-WEST LIFECO INC. $24 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; Shares outstanding: 944.7 million; Market cap: $22.7 billion; Price-to-sales ratio: 0.7; Dividend yield: 5.1%; SI Rating: Above Average) is Canada’s largest insurance company, with $340.7 billion of assets under management. It also offers retirement planning and wealth-management services. Power Corp. owns 68.7% of Great-West’s shares. The company gets 50% of its earnings from Canada, followed by Europe (30%) and the U.S. (20%). Great-West’s revenue rose 171.4%, from $28.2 billion in 2004 to $76.5 billion in 2008. Earnings rose from $1.50 a share (or a total of $1.2 billion) in 2004 to $2.26 a share (or $2.0 billion) in 2008.

Putnam purchase behind gains

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BMO DIVIDEND FUND $41.10 (BMO Mutual Funds, 77 King Street West, Suite 4200, Royal Trust Tower, Toronto, Ont., M5K 1J5, Tel: 1-800-665-7700; Web site: www.bmo.com. No load — deal directly with the bank) (CWA Rating: Conservative) holds about 48.5% of its portfolio in the Finance sector. The fund’s next-largest sectors are Energy (23.4%), Consumer Discretionary (5.9%) and Materials (5.0%). The $3.9-billion BMO Dividend Fund’s largest stock holdings are Bank of Nova Scotia, CIBC, Royal Bank, Suncor Energy, Manulife Financial, Toronto-Dominion Bank, TransCanada Corporation, EnCana Corporation, Enbridge and Goldcorp. The fund’s MER is 1.71%....

ISHARES CDN LARGECAP 60 INDEX FUND $16.46 (Toronto symbol XIU; buy or sell through a broker) (units split 4-for-1 in August 2008) is a good, low-fee way to buy the top stocks and income trusts on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets. Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, the index holds a few we wouldn’t include, such as Yellow Pages Income Fund. The index’s top holdings are: Royal Bank, 8.2%; Suncor Energy, 5.9%; TD Bank, 5.7%; Bank of Nova Scotia, 5.0%; EnCana, 4.8%; Barrick Gold, 4.1%;Canadian Natural Resources, 3.9%; Manulife, 3.5%; Research in Motion, 3.2%; Potash Corp., 3.1%; Goldcorp, 3.1%; Bank of Montreal, 2.9%; CN Railway, 2.6%; and CIBC, 2.5%....

ISHARES DIVIDEND INDEX FUND $17.74 (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 assets. The fund’s MER is 0.50%. iShares Dividend Index Fund has a yield of 4.0%. Top holdings are National Bank, 8.9%; Bank of Montreal, 8.0%; CIBC, 7.2%; TD Bank, 6.3%; IGM Financial, 5.0%; Bank of Nova Scotia, 5.0%; Royal Bank, 4.9%; Manitoba Telecom, 4.6%; TMX Group, 3.6%; Sun Life, 3.2%; Power Financial, 3.2%; Telus, 3.1%; and Russel Metals, 2.8%. iShares Dividend Index Fund is a buy.

While ETFs won’t protect you from the three costliest mistakes an investor can make, they may have a worthwhile place in your portfolio. Unlike many other innovations, ETFs don’t load you up with heavy management fees, or tie you down with heavy redemption charges if you decide to get out of them. Instead, they give you a lower-cost and more flexible and 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 them, but you will quickly make these back because of the low management fees....

FIDELITY TRUE NORTH FUND $24.80 (CWA Rating: Conservative) (Fidelity Investments Canada, 483 Bay St., Suite 200, Toronto, Ont. M5G 2N7. 1-800-263-4077; Web site: www.fidelity.ca. Load fund — available from brokers) invests in companies that the managers see as undervalued. They base their judgments on fundamentals, such as earnings, dividend yield, book value, cash flow and debt level. Fidelity True North Fund holds 77 stocks. Its top holdings consist of the following high-quality companies: Toronto-Dominion Bank, Manulife Financial, Rogers Communications, EnCana Corporation, Research in Motion, Canadian Natural Resources, Goldcorp Inc., Potash Corporation of Saskatchewan, Suncor Energy and Royal Bank of Canada. Fidelity True North Fund’s breakdown by economic segment is: Financials, 27.0%; Energy, 24.0%; Metals & Minerals, 22.6%; Industrials, 6.6%; Telecommunication Services, 6.3%; Information Technologies, 5.8%; Consumer Discretionary, 3.3%; and Consumer Staples, 2.0%....