Toronto-Dominion Bank

SCOTIA CANADIAN GROWTH FUND $41.09 (CWA Rating: Conservative) (Scotia Securities, 40 King Street West, 6th Floor, Toronto, Ontario M5H 1H1. 1-800-268-9269; Web site: www.scotiabank.com. No load — deal directly with the bank) attempts to use an investment’s fundamentals to determine whether it has the potential for above-average growth. The $315.8-million Scotia Canadian Growth Fund’s largest stock holdings include EnCana Corp., Royal Bank, TD Bank, BCE Inc., Potash Corp., Canadian Natural Resources, Suncor Energy, Bank of Nova Scotia and Barrick Gold. Scotia Canadian Growth holds 43.3% of its portfolio in the resource sector. Its next-largest segment is financial services, at 24.9%....

TORONTO-DOMINION BANK $39 (Toronto symbol TD; Conservative Growth Portfolio, Finance sector; Shares outstanding: 810.1 million; Market cap: $31.6 billion; Price-to-sales ratio: 1.2; SI Rating: Above Average) is the second-largest Canadian bank, with assets of $563.2 billion. Like Royal, TD has built up its U.S. operations over the past few years. It has focused more on retail banking, however, which is more stable than brokerage services or wealth management. Retail banking in Canada and the U.S. now accounts for roughly 80% of TD’s earnings.

Writedowns hurt 2008 earnings

TD is not immune to the current financial crisis. In fiscal 2008, earnings at TD’s wholesale banking division fell 92%, due to $350 million in trading losses and writedowns of illiquid securities....

Canada’s banking industry is still healthy despite the problems caused by the worldwide credit crisis. Most of the big five banks have also issued new preferred and common shares in the past few months. The extra funds put them in a good position to make timely acquisitions and keep paying above-average dividends. ROYAL BANK OF CANADA $30 (Toronto symbol RY; Conservative Growth Portfolio, Finance sector; Shares outstanding: 1.3 billion; Market cap: $39 billion; Price-to-sales ratio: 1.4; SI Rating: Above Average) is Canada’s largest bank, with total assets of $723.9 billion. Royal continues to expand its operations in the United States. These now account for 17% of its revenue, and have increased Royal’s exposure to the struggling U.S. housing market....

BCE INC., $26.12, Toronto symbol BCE, earned $1.8 billion in 2008, down 3.9% from $1.9 billion in 2007. Earnings per share fell 3.8%, to $2.25 from $2.34 on more shares outstanding. Revenue fell 0.3%, to $17.7 billion from $17.75 billion. These figures exclude restructuring charges, mainly job cuts, and other one-time items. The restructuring should cut BCE’s annual expenses by $400 million. BCE continues to lose traditional phone customers to cable companies and Internet-based phone services, but these losses are slowing. Meanwhile, BCE’s cellphone business is growing strongly; revenue rose 7.6% in 2008, and its subscriber base grew by 4.5%. The wireless division accounts for 25% of BCE’s revenue and 43% of its profit. Higher demand for BCE’s high-speed Internet and satellite-TV services helped offset lower revenue from its traditional phone services. Despite the lower earnings, BCE raised its quarterly dividend by 5.5%, to $0.385 a share from $0.365. The new annual rate of $1.54 yields 5.9%....

BANK OF NOVA SCOTIA 6.25% SERIES 26 PREFERREDS $24.90 (Toronto symbol BNS.PR.T) pay quarterly dividends at a rate of $1.5625 annually and have a current yield of 6.28%. Dividends are paid in April, July, October and January. Like most Canadian financial institutions, Bank of Nova Scotia’s preferred dividends are non-cumulative. That’s because it’s more advantageous for banks to classify their preferred shares as subordinate capital, which is capital that ranks after the banks’ deposits and gives them more financial flexibility in a difficult economy. Non-cumulative preferred shares meet this test, as dividends are suspendable without penalty. Of course, this means less security for preferred shareholders. However, the risk of banks halting preferred dividends is extremely remote....

PRECISION DRILLING TRUST $8.81, Toronto symbol PD.UN, has completed its acquisition of U.S.-based contract driller Grey Wolf Inc. The trust paid roughly $1.15 billion in cash and $250 million in new units for Grey Wolf. Precision finalized the terms of the Grey Wolf takeover in August, 2008. Since then, the price of Precision’s units has dropped 60%, mostly due to a 70% drop in oil prices, from $120 U.S. a barrel to $40 U.S. The drop in oil and natural gas prices prompted many producers to cut spending on new exploration in 2009, which hurts Precision’s profit outlook. Precision’s market cap is now just $1.1 billion, which is 21% below the $1.4 billion that it paid for Grey Wolf. Precision also needed to arrange $1.6 billion U.S. in new credit facilities to buy Grey Wolf. That greatly increased its long-term debt, which was $231.8 million (Canadian) at September 30, 2008. To help free up cash for debt repayments, Precision has now cut its monthly cash distributions by 69.2%, from $0.13 a unit to $0.04. The new annual rate of $0.48 yields 5.4%....

ISHARES DIVIDEND INDEX FUND $14.89 (Toronto symbol XDV; buy or sell through a broker) currently holds the 30 highest yielding Canadian stocks. Stocks are included in the index based on their dividend growth, yield and average payout ratio. The weight of any one stock in the fund is limited to 10% of the fund’s assets. Its MER is 0.50%. The fund now yields 5.2%. The fund’s top holdings are: CIBC at 7.6%; Bank of Montreal, 6.4%; National Bank, 6.1%; Manitoba Telecom at 5.6%; TD Bank, 5.5%; IGM Financial, 4.8%; Bank of Nova Scotia, 4.4%; Royal Bank, 4.3%; Russel Metals, 4.3%; Telus Corp., 4.1%, TMX Group, 3.5%; and Sun Life Financial, 3.4%....

BMO DIVIDEND FUND $34.97 (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 35.1% of its portfolio in the Financial services industry. Its next-largest holding is Energy at 21.1%. The $3.7 billion BMO Dividend Fund’s largest holdings are Manulife Financial, Bank of Nova Scotia, CIBC, Royal Bank, Shoppers Drug Mart, TD Bank, TransCanada Corp., EnCana, Enbridge and Shaw Communications. The fund’s MER is 1.71%. Over the five years to November 30, 2008, the fund posted a 4.6% annual rate of return. The S&P/TSX gained 5.7% annually, but that was largely due to the big run up in resources prices that lasted until early in 2008. The S&P/TSX index holds a high 40% or so of its holdings in Resources stocks....

FIDELITY CANADIAN LARGE CAP FUND $17.11 (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 mostly in large-sized firms like those on the S&P/TSX Index, although it may also invest in small and mid-cap stocks. The top holdings of the $339.9 million Fidelity Canadian Large Cap Fund are Royal Bank of Canada, Suncor Energy, Manulife Financial, Canadian Natural Resources, Potash Corporation of Saskatchewan, Research in Motion, EnCana Corp., Bank of Nova Scotia, Barrick Gold and TD Bank. Fidelity Canadian Large Cap Fund’s one-year loss is 27.0%, compared to a loss of 31.4% for the S&P/TSX Index. The fund has averaged 7.8% annually for the last five years....

ISHARES CDN LARGECAP 60 INDEX FUND $12.71 (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 on the TSX. The units hold a basket of stocks that represent the S&P/TSX 60 Index. The index is made up of the 60 largest and most heavily traded stocks on the TSX. Expenses on the units are just 0.17% of assets. Most of the 60 stocks in the index are good quality companies. However, to meet the requirement that all sectors are represented, the index holds a few firms we wouldn’t include, such as Biovail Corp. The index’s top holdings are: Royal Bank, 7.5%; EnCana Corporation, 5.8%; TD Bank, 4.8%; Bank of Nova Scotia, 4.7%; Manulife Financial, 4.6%; Barrick Gold, 4.3%; Canadian Natural Resources, 3.6%; Research in Motion, 3.5%; Suncor Energy, 3.5%; Goldcorp, 3.3%; Potash Corporation, 3.2%; Canadian National Railway, 2.8%; BCE Inc., 2.6%; Rogers Communications, 2.5%; and Bank of Montreal, 2.5%....