Toronto-Dominion Bank

SNC-LAVALIN GROUP INC., $52.78, Toronto symbol SNC, is a leading Canadian engineering and construction company. SNC also owns 16.77% of Highway 407, a 108-kilometre toll highway north of Toronto. This week, the Canadian Pension Plan Investment Board (CPPIB) agreed to buy 10% of Highway 407 from the highway’s main shareholder, Ferrovial S.A. of Spain. Ferrovial currently owns 53% of 407. CPPIB agreed to pay $894.3 million for 10% of the 407. However, SNC intends to exercise its right of first refusal and buy these shares from Ferrovial. That will raise SNC’s stake in the highway to 26.77%....

BANK OF NOVA SCOTIA, $52.94, Toronto symbol BNS, earned $1.1 billion in the three months ended July 31, 2010. That’s up 14.1% from $931 million a year earlier. Earnings per share rose 12.6%, to $0.98 from $0.87, on more shares outstanding. Despite the gain, the latest earnings fell short of the consensus estimate of $1.00 a share. The bank set aside less money to cover bad loans because of the improving economy; that was the main reason for the higher earnings. In the latest quarter, loan-loss provisions fell 50.2%, to $276 million from $554 million a year earlier. Earnings at Bank of Nova Scotia’s Canadian banking division rose 21%, to a record $604 million, due to stronger demand for loans and wealth-management services. Earnings at the international-banking business rose just 2%, to $317 million, mostly because the higher Canadian dollar hurt their contribution. Without the negative impact of exchange rates, earnings at this business would have risen 11%. Earnings at the capital-markets division fell 35% to $305 million, as volatile stock markets and concerns over European sovereign debt hurt trading volumes....

Regardless of whether you follow an aggressive or conservative investing approach, we continue to recommend that you own shares of at least two of Canada’s big-five banks — Bank of Montreal, Royal Bank, CIBC, TD Bank and Bank of Nova Scotia. However, banks shouldn’t be the extent of your Canadian financial holdings. To increase your profits and cut your risk, it is also essential to diversify your holdings within each economic sector — including Canadian finance. Other types of financial investments, such as non-bank financial companies, should also play a role in your portfolio.

High-quality non-bank financials could be big winners in the ongoing recovery

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TORONTO-DOMINION BANK $72 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 868.2 million; Market cap: $62.5 billion; Price-to-sales ratio: 2.5; Dividend yield: 3.4%; SI Rating: Above Average) is expanding its commodity-related operations. This puts it in a position to profit from the rise in commodity prices that’s likely as the economy recovers. TD recently paid an undisclosed sum for Ross Smith Sousa Advisors Ltd., a Calgary-based firm that advises oil and gas producers on asset purchases and sales. Canada is likely to attract more foreign investment of all kinds in the next few years, due to our (relatively) strong national finances and the strength of the Canadian dollar. That’s especially likely in oil and gas, now that the BP oil spill has spurred demands for a stronger regulatory climate in the U.S....

ISHARES MSCI CANADA INDEX FUND $25.44 (New York symbol EWC; buy or sell through brokers) is like a market-cap-based index fund, but its managers try to improve performance by tinkering with the index-fund formula. They do this through their proprietary Morgan Stanley Capital International Canada Index. The fund has an MER of 0.55%. The index’s top holdings are: Royal Bank, 7.1%; TD Bank, 5.6%; Suncor Energy, 4.5%; Bank of Nova Scotia, 4.4%; Barrick Gold, 3.9%; Canadian Natural Resources, 3.6%; Bank of Montreal, 3.1%; Goldcorp, 3.0%; Research in Motion, 2.9%; Potash Corp., 2.8%; Manulife, 2.8%; and CN Railway. If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index Fund. You’ll pay about a third of the management fees....

ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $18.63 (Toronto symbol XDV; buy or sell through a broker) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of assets. The fund’s MER is 0.50%. It yields 4.0%. The fund’s top holdings are CIBC, 7.7%; Bank of Montreal, 6.8%; TD Bank, 5.8%; National Bank, 5.3%; Telus, 5.1%; Manitoba Telecom, 4.7%; Bank of Nova Scotia, 4.6%; Royal Bank, 4.2%; IGM Financial, 4.0%; and TransCanada Corp., 3.5%. The fund holds 60.3% of its assets in financial stocks. Utilities are next, at 23.0%. The top Canadian finance stocks have sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector....

ISHARES S&P/TSX 60 INDEX FUND $16.78 (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, it holds a few we wouldn’t include, such as Yellow Pages Income Fund. The index’s top holdings are: Royal Bank, 7.5%; TD Bank, 6.1%; Bank of Nova Scotia, 5.2%; Suncor Energy, 5.1%; Barrick Gold, 4.8%; Canadian Natural Resources, 3.9%; Goldcorp, 3.5%; Bank of Montreal, 3.3%; CN Railway, 3.0%; Potash Corp., 2.8%; Manulife, 2.8%; CIBC, 2.7%; Research in Motion, 2.6%; and TransCanada Corp., 2.5%....

ROYAL BANK OF CANADA $52 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.4 billion; Market cap: $72.8 billion; Price-to-sales ratio: 2.0; Dividend yield: 3.8%; SI Rating: Above Average) is Canada’s largest bank, with total assets of $655.1 billion. In the three months ended April 30, 2010, Royal earned $1.3 billion, or $0.88 a share. That’s a big improvement over the $50 million, or $0.07 a share, it lost a year earlier. The year-earlier loss was mainly caused by a $1-billion writedown of goodwill related to U.S. banks that Royal had purchased. Without this charge, Royal would have earned $950 million, or $0.63 a share, in the year-earlier quarter. Revenue rose 3.0% in the most recent quarter, to $7.0 billion from $6.8 billion. Royal’s international operations account for roughly 10% of its revenue, and the stronger Canadian dollar cut their contribution by $534 million. The higher dollar also lowered the bank’s earnings by $0.06 a share. However, Royal is setting aside less cash to cover bad loans: its loan-loss provisions fell 48.3%, to $504 million from $974 million....

ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $19.08 (Toronto symbol XDV; buy or sell through a broker) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10%. The fund’s MER is 0.50%. It yields 4.0%. The ETF’s top holdings are CIBC, 7.9%; Bank of Montreal, 7.2%; TD Bank, 5.8%; National Bank, 5.3%; Telus, 4.8%; Manitoba Telecom, 4.8%; Bank of Nova Scotia, 4.5%; Royal Bank, 4.3%; IGM Financial, 4.1%; and Sun Life, 3.4%. The fund holds 61.4% of its assets in financial stocks. Utilities are next at 22.6%. The top Canadian finance stocks offer sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector....

The Greek bailout and the poor financial state of major countries rattled the market again this week. Everybody agrees that high government debt and deficit spending are serious problems that must be fixed, but opinions differ about urgency. The biggest pessimists see government debt-and-deficits as terminal conditions that are too far advanced to be reversed. Others see the debt-deficit as more akin to a serious case of high blood pressure – a risk factor, not a death sentence. My view is that a combination of budget cuts, economic growth and a dash of inflation may be enough to gradually unwind the debt-and-deficits problem over a period of years if not decades....