transcanada

TERANET INCOME FUND $9.50, Toronto symbol TF.UN, has received a new takeover offer from the Ontario Municipal Employees Retirement System (OMERS). The new offer of $10.25 a unit is 6.8% less than the previous offer of $11.00. Teranet’s units are now trading for roughly 7% below the new offer. The lower offer reflects a slowing economy in Ontario and falling real estate values. That could hurt demand for Teranet’s electronic land registry services. As well, it’s increasingly difficult to secure loans for corporate takeovers. Teranet recommended that investors accept the first OMERS offer, after it failed to attract other bidders. Teranet has not yet commented on the new offer of $10.25 a unit. However, it’s still unlikely that a new bidder will emerge. As well, Teranet’s second-largest shareholder has accepted the new offer....

RIOCAN REAL ESTATE INVESTMENT TRUST $20.25 (Toronto symbol REI.UN; SI Rating: Average) has increased its monthly distributions by 2.2%, from $0.1125 a unit to $0.115. The new annual rate of $1.38 yields 6.8%. RioCan is a buy. ARC ENERGY TRUST $22.55 (Toronto symbol AET.UN; SI Rating: Extra risk) has rescinded one of its recent monthly distribution increases in light of lower oil and gas prices. It now yields 12.8%....

BANK OF MONTREAL $49 (Toronto symbol BMO) earned $0.98 a share in its third fiscal quarter, ended July 31, 2008, down 23.4% from $1.28 a year earlier. The drop was mainly caused by higher loan-loss provisions, particularly from two corporate loans linked to the weak U.S. mortgage market. However, overall revenue rose 7.5%, to $2.75 billion from $2.6 billion, reflecting strong gains at all of its main businesses. Buy. TRANSCANADA CORP. $38 (Toronto symbol TRP) has agreed to combine its natural gas transmission assets in Alberta with those of Canadian Utilities Ltd. Each company will continue to separately manage its own assets, but regulators will treat the merged system as a single entity with a single rate structure. This alliance should improve the efficiency of both systems. Conservative Investor Best Buy. ENCANA CORP. $69 (Toronto symbol ECA) is down 30% from its all-time peak of $98 in May 2008, largely because of falling oil and natural gas prices. However, EnCana’s upcoming split into two companies — one focusing on natural gas, the other on oil sands and oil refineries — enhances the long-term prospects of both of these businesses. Conservative Investor Best Buy....

TERANET INCOME FUND $11.47, Toronto symbol TF.UN, is now the target of a hostile $11.00-a-unit takeover offer from the Ontario Municipal Employees Retirement System. As part of the deal that established Teranet as a public company in June, 2006, the Ontario government capped the amount a single investor can own at 25%. So, any takeover would require government approval. (Teranet has an exclusive license from the Ontario government to operate the province’s electronic land registry system until 2017.) Despite this hurdle, Teranet’s units are trading above the offer price. That suggests that investors feel a higher offer is likely....

TransCanada Corp. $40 (Toronto Symbol TRP Conservative Growth Portfolio, Utilities sector; Shares outstanding: 578.0 million; Market cap: $23.1 billion; SI Rating: Above average) has received approval to build a pipeline that would transport natural gas from northern Alaska to the Alberta-British Columbia border. From there, TransCanada would ship the gas through existing pipelines to markets in Canada and the continental United States. The project could take a decade to complete, and cost $26 billion. That’s 13% more than TransCanada’s market cap. However, Alaska has huge natural gas reserves. TransCanada would probably bring in partners to cut its costs. As well, the company expects to receive $500 million U.S. in assistance from the Alaskan government....

TRANSALTA CORP. $36 (Toronto symbol TA; SI Rating: Average) rose as high as $38 in July after it received an informal takeover offer worth $39.00 a share from a private equity partnership that includes Luminus Management. Luminus currently owns about 9% of TransAlta’s stock, and has pressured the company to sell non-core assets, buy back shares and raise the dividend. The stock currently trades about 8% below Luminus’ offer. That’s mainly due to concerns that problems in credit markets will make it difficult for the buyers to borrow the cash they need to complete the takeover. TransAlta is a major supplier of Alberta’s electricity. The buyers could have difficulty winning regulatory approval if the takeover significantly increases TransAlta’s debt, and limits its ability to invest in new power plants or environmental upgrades....

BMO DIVIDEND FUND $44.99 (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 36.3% of its portfolio in the Financial services industry. Its next-largest holdings are Energy at 24.4% and Consumer discretionary at 9.1%. BMO Dividend Fund’s largest holdings are Manulife Financial, Bank of Nova Scotia, CIBC, Royal Bank of Canada, Power Financial Corporation, Toronto-Dominion Bank, TransCanada Corporation, Imperial Oil, Suncor Energy, EnCana Corporation, Enbridge Inc., Husky Energy and Sun Life Financial. Over the last five years, the $5.2 billion BMO Dividend Fund has posted a 12.1% annual rate of return. That’s under the S&P/TSX’s gain of 18.2%. However, the S&P/TSX index held a high 40% or so of its holdings in Resources shares. That’s been one of the best-performing, although riskiest, sectors. The fund lost 5.6% over the last year, compared to a gain of 6.8% for the S&P/TSX index. BMO Dividend’s MER is 1.71%....

BMO Dividend and RBC Canadian Dividend hold mostly high-quality stocks. Even high-quality stocks sometimes run into trouble and go through lengthy struggles, just like lesser investments. Eventually, though, most solve their problems and go on to thrive anew. Both funds hold a high proportion of their assets in financial services stocks. However, if you must focus on something, finance is a relatively stable sector, at least in Canada. If you do invest in these funds, be sure to adjust the rest of your portfolio so these funds won’t overly concentrate your holdings in the financial sector....

ISHARES CANADIAN BOND INDEX FUND $28.67 (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 diversified range of investment grade Canadian government and corporate bonds, with a term to maturity of more than one year. At last report, the bonds in the index were 41.5% Government of Canada bonds, 26.7% Provincial government bonds, 2.1% municipal bonds and 28.8% corporate bonds....

We generally advise against investing in bond funds because we doubt that bond fund managers can add enough value to offset their fees. However, if you need steady income and want to hold bond funds, here are two funds that have low fees and top-quality holdings, and that stay out of speculative trading. ISHARES CANADIAN SHORT BOND INDEX FUND $28.31 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short Term Bond Index....