transcanada

ISHARES CANADIAN BOND INDEX FUND $29.23 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) mirrors the performance of the DEX Universe Bond Index. This index consists of a wide range of investment-grade Canadian government and corporate bonds with terms to maturity of more than one year. The 221 bonds in the fund’s portfolio have an average term to maturity of 8.7 years. The bonds in the index are 71.2% government and 28.8% corporate. The fund sticks with high-quality government bonds from issuers such as Canada Housing Trust, Government of Canada and Province of Ontario, plus high-quality corporate bonds from issuers such as Bank of Montreal, TransCanada Pipelines, Bank of Nova Scotia, Great-West Lifeco and Bell Canada....

With interest rates so low, bonds have become much less attractive to income-seeking investors. However, if you need stable income and want to hold bonds, here are two bond funds that have low fees and top-quality holdings. As well, both cut risk by avoiding speculative trading and emphasizing government bonds. ISHARES CANADIAN SHORT BOND INDEX FUND $29.34 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short-Term Bond Index. This index consists of a wide range of investment-grade federal, provincial, municipal and corporate bonds with between one- and five-year terms to maturity. The iShares Canadian Short Bond Index Fund currently holds 152 bonds with an average term to maturity of 2.9 years....

TRANSCANADA CORP. $33.20 (Toronto symbol TRP; Shares outstanding: 620.5 million; Market cap: $20.6 billion; SI Rating: Above Average) plans to spend $19 billion on new growth projects over the next four years. These include expanding its existing pipeline network and building new pipelines, natural gas storage facilities and power plants. The largest of TransCanada’s projects is its $12-billion U.S. Keystone pipeline, which will pump crude oil from Alberta’s oil sands to refineries in the U.S. Midwest and Gulf Coast....

MDS INC., $5.36, Toronto symbol MDS, gets all of its medical isotopes from the 52-year-old Chalk River nuclear reactor near Ottawa. The reactor was shut down this week after its operator, Atomic Energy of Canada Ltd., discovered a water leak. (Water helps stabilize the nuclear fission process.) Atomic Energy estimates that it will take at least a month to repair the leak. MDS makes over half of its earnings by selling isotopes to medical labs, which use them to detect and treat cancer and other diseases. The company estimates that a prolonged outage will cut its gross earnings by $4 million a month (all amounts except share price in U.S. dollars). MDS earned $2 million, or $0.02 a share, in the three months ended January 31, 2009....

With bonds yielding just 2% to 3%, we believe that income-seeking investors are better off sticking with high-quality utility stocks, such as these four electricity generators. All have consistently posted strong earnings, and have long histories of raising their dividends. Unlike bond-interest payments, which are taxed as regular income, their dividends qualify for the dividend tax credit. They also have greater capital-gains potential. TRANSALTA CORP. $20 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 197.8 million; Market cap: $4 billion; Price-to-sales ratio: 1.3; SI Rating: Average) operates over 50 electrical-power plants in Canada, the United States and Australia. TransAlta uses coal to generate 60% of its electricity, and owns three coal mines (two in Alberta and one in Washington State). This helps keep its costs down. Natural gas fuels 30% of the company’s electricity production, and hydroelectric and other sources account for 10%....

TRANSALTA CORP. $20 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 197.8 million; Market cap: $4 billion; Price-to-sales ratio: 1.3; SI Rating: Average) operates over 50 electrical-power plants in Canada, the United States and Australia. TransAlta uses coal to generate 60% of its electricity, and owns three coal mines (two in Alberta and one in Washington State). This helps keep its costs down. Natural gas fuels 30% of the company’s electricity production, and hydroelectric and other sources account for 10%. This heavy dependence on coal has made TransAlta a target for environmentalists. To comply with tougher carbon-emission regulations, the company has teamed up with TransCanada Corp. to capture and store carbon emitted from TransAlta’s coal-fired power plants. The project could cost $400 million. The federal government plans to contribute $20 million to $30 million, and the two companies will probably split the rest....

TRANSCANADA CORP. $30 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 619 million; Market cap: $18.6 billion; Price-to-sales ratio: 2.0; SI Rating: Above Average) has won a $320-million U.S. contract to build, own and operate a 310-kilometre natural-gas pipeline in Mexico. (It already owns a 130-kilometre gas pipeline in the country.) To put this in context, TransCanada earned $343 million (Canadian), or $0.55 a share in the first quarter of 2009. TransCanada has a 25-year contract to use the new pipeline to supply fuel to two power plants owned by Mexico’s state-owned electric company. It should begin operating in March 2011. TransCanada is a buy.

When we judge the investment quality of an individual company, we take nine key factors into account. These are: a record of profit; a record of dividends; an influential industry position; balance-sheet strength; geographical diversification; freedom from business cycles; freedom from excess regulation or insider abuse; ability to profit from lasting secular trends (such as global economic liberalization); and the ability to cash in on habitual customer behaviour. Mutual-fund ratings are more complex, since they are a step removed from these factors. Before we award our CWA Fund Ratings (Aggressive, Conservative or Income), we assess a fund’s strengths and weaknesses in several key areas. We start by looking at the quality of the fund’s holdings, based on our nine key factors. Then we look at the degree to which its holdings are spread out across the five main economic sectors: Manufacturing, Resources, Consumer, Finance and Utilities. Funds that focus on narrow segments are more risky or aggressive than those that diversify, even if they focus on a conservative area, such as Utilities....

RBC CANADIAN DIVIDEND FUND $37.65 (RBC Funds, P.O. Box 7500, Station A, Toronto, Ontario M5W 1P9. 1-800-463-3863; Web site: www.royalbank.com. No load — deal directly with the bank) invests in well-established, dividend-paying companies. In fact, it invests solely in common stocks. That’s why, despite the fund’s name, we rate it Conservative rather than Income. The $7.1-billion RBC Canadian Dividend Fund’s top stock holdings are: Royal Bank of Canada, Bank of Nova Scotia, TD Bank, Manulife Financial, Brookfield Asset Management, EnCana, Bank of Montreal, TransCanada Corp. and Power Corp. RBC Canadian Dividend is a Conservative buy.

TIM HORTONS INC. $32 (Toronto symbol THI; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 181.5 million; Market cap: $5.8 billion; Price-to-sales ratio: 3.0; SI Rating: Average) plans to buy back up to 5% of its outstanding shares in 2009. This could cost it $200 million. (In 2008, it earned $301 million, or $1.64 a share.) Share buybacks reduce the number of shares outstanding, which increases the value of the remaining shares. Tim Hortons has also raised its dividend by 11.1%, to $0.40 a share, for a yield of 1.3%. Tim Hortons is a buy. CANADA BREAD CO. LTD. $39 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $990.6 million; Price-to-sales ratio: 0.6; SI Rating: Above Average) earned $64.9 million, or $2.55 a share, in 2008. That’s down 22.6% from $83.8 million, or $3.30 a share, the previous year. However, these figures include several non-recurring items, including the replacement of a U.K. bagel plant that was destroyed by a fire early last year. If you disregard all unusual costs, earnings per share fell 13.3%, to $2.87 from $3.31. Sales rose 12.9%, to $1.7 billion from $1.5 billion, mainly because Canada Bread raised its prices to offset higher wheat and other input costs....