telus

TELUS CORP. $45.12 (Toronto symbol T.A; Shares outstanding: 335.6 million; Market cap: $15.1 billion; TSINetwork Rating: Above Average; Dividend yield: 4.7%; www.telus.com) recently raised its quarterly dividend for the second time this year. The new annual rate of $2.10 a share, up 5.0% from $2.00, yields 4.7%. Even with the increase, Telus’s dividend payments account for just 22% of its forecast 2010 cash flow of $3 billion, or $9.35 a share, so further hikes seem likely. That strong cash flow will also let Telus keep investing in its networks and other businesses. As well, its long-term debt of $5.4 billion is a moderate 36% of its market cap...

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)....

ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $20.26 (Toronto symbol XDV; buy or sell through a broker; ca.ishares.com) 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 5.3%. The fund’s top holdings are CIBC, 8.0%; Bank of Montreal, 6.4%; National Bank, 5.7%; TD Bank, 5.6%; Telus, 5.2%; Bank of Nova Scotia, 4.6%; Manitoba Telecom, 4.5%; IGM Financial, 4.2%; Royal Bank, 4.0%; Enbridge, 3.5%, TMX Group, 3.5%; and TransCanada Corp., 3.3%. The fund holds 60.1% 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....

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. However, ETFs’ low management fees still give them a cost advantage over most conventional mutual funds. As well, 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....

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....

TELUS CORP. $41.99 (Toronto symbol T.A; Shares outstanding: 335.6 million; Market cap: $14.1 billion; SI Rating: Above Average; Dividend yield: 4.8%) has taken advantage of low interest rates to refinance some of its debt. The company recently issued $1 billion of new 5.05%, 10-year notes. It will use some of this cash to repay $613 million U.S. of its 8.0% notes, which are due in June 2011. Telus’s long-term debt stands at $6.2 billion, or 44% of its market cap. However, high debt loads are common for telephone utilities. That’s because they must invest large sums in their networks and infrastructure. However, these assets produce steady revenue streams to cover interest costs and pay down debt....

ENCANA CORP., $32.22, Toronto symbol ECA, fell 4% after the company reported lower-than-expected earnings. In the three months ended June 30, 2010, Encana earned $81 million, or $0.11 a share (all amounts except share price in U.S. dollars). These figures exclude a $340-million loss on hedging contracts that the company uses to lock in selling prices for its natural gas, and a $246-million foreign-exchange loss. On this basis, the latest earnings fell well short of the consensus estimate of $0.22 a share. They were also down 82.8% from the company’s year-earlier earnings of $472 million, or $0.63 a share. Cash flow per share fell 13.2%, to $1.65 from $1.90. Revenue rose 10.2%, to $1.5 billion from $1.3 billion. (Note: The year-earlier figures assume that the break-up of the old EnCana Corp. into the new Encana and Cenovus Energy Inc. took place at the start of 2009 instead of December 1, 2009.)...

We continue to think investors will profit most — and with the least risk — by buying shares of well-established companies with strong business prospects and strong positions in healthy industries. (In the current issue of Canadian Wealth Advisor, our newsletter for the conservative investor, we update our buy/sell/hold advice on a well-established company that has risen over 36% for us in the past year — and could go even higher. Read on for further details.) That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, safety-conscious stocks have the asset size and the financial clout — including solid balance sheets and strong cash flow — to weather market downturns or changing industry conditions. That makes them good picks for a conservative investor....

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....

Telus faces rising competition in the most profitable parts of its business, including wireless. Even so, the company is thriving by upgrading its network; offering bundles of local phone, TV and wireless services; and expanding its retail-store network and more. TELUS CORP. $38.90 (Toronto symbol T.A; Shares outstanding: 335.6 million; Market cap: $13.1 billion; SI Rating: Above Average; Dividend yield: 5.1%) provides telephone services in B.C., Alberta and eastern Quebec. It also sells wireless services across Canada. In the three months ended March 31, 2010, Telus’s earnings rose 2.5%, to $0.83 a share from $0.81. Revenue was unchanged, at $2.4 billion. That’s because lower local and long-distance revenue offset higher sales of wireless and Internet services. Telus also raised its dividend by 5.3%. The new annual rate of $2.00 yields 5.1%....