A Fine Year for Canada’s Dividend Lovers

12/21/2011 12:48 pm EST

Focus: GLOBAL

John Heinzl

Reporter and Columnist, GlobeInvestor.com

Not all of John Heinzl's picks beat the market, but his team's hunt for yield produced many winners, he writes in Globe Investor.

We're not big on short-term trading. We prefer to buy and hold great dividend stocks for years, so we can collect the rising income.

So it may seem strange that we're already reviewing our 2011 stock picks, some of which we wrote about only a month or two ago. What can a few months possibly tell you?

Not much, actually. But there's a good chance Yield Hog may not be here in five, ten, or 20 years to perform this exercise. Depending on how our own investments pan out, we could be sailing around the world. Or greeting shoppers at Walmart (WMT).

Which leaves us no choice but to review these stocks now, keeping in mind that doing so has very little value beyond allowing Yield Hog to gloat about the ones that have worked out so far, and allowing you to laugh at us for the ones that haven't.

The return of each stock, and the relevant benchmark, is from the article publication date through December 19 and assumes all dividends were reinvested.

Dollarama (Toronto: DOL) Profiled: May 4, 2011
Then: $29.97 Now: $42.76
Return: +43.4%
S&P/TSX return: -13.8%

We cited Dollarama's strong balance sheet and growing free cash flow as reasons to expect it to initiate a modest dividend, and the retailer did just that in June.

The 9 cent quarterly payment works out to a yield of just 0.84%, but the dividend will almost certainly grow as Canada's biggest dollar store continues to expand.

The stock has had a big run since we wrote about it, however, and may no longer be a screaming buy.

Reitmans (Toronto: RET.A)
Profiled: June 9, 2011
Then: $15.11 Now: $14.26
Return: -3.4%
S&P/TSX return: -11.7%

We said Reitmans' stock was a "compelling bargain" after plunging on lousy first-quarter results. But the market apparently didn't agree, judging by the ongoing weakness in the shares.

Although the clothing chain sports a juicy 5.5% yield and has a bulletproof balance sheet with lots of cash and virtually no debt, Reitmans' same-store sales slumped 5.2% through the nine months to October 29, as debt-burdened shoppers hunkered down.

High Liner Foods (Toronto: HLF)
Profiled: June 23, 2011
Then: $15.10 Now: $15.49
Return: +3.9%
S&P/TSX return: -9.9%

We called growth-minded High Liner a "good catch," noting that the frozen seafood processor and marketer was poised for further dividend hikes after increasing its quarterly payment seven times in three years.

Continued.

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Since the article appeared, High Liner has reeled in the US and Asian operations of Icelandic Group, making it the biggest seafood supplier to North American restaurants, schools and hospitals. Even in a down market, the stock has stayed afloat.

McDonald's (MCD)
Profiled: Oct. 11, 2011
Then: $89.34 Now: $97.24
Return: +9.7%
S&P 500 return: 1.3%

We've been known to sneak a double hamburger now and then, but it was McDonald's 35-year history of dividend increases that really got us salivating.

With plenty of room for growth in Asia, an ever-evolving menu, refurbished stores and the successful launch of McCafes, the Golden Arches will keep the annual dividend increases coming for many more years, we wrote.

As the shares approach $100, we're licking our lips for a possible stock split.

Inter Pipeline Fund (Toronto: IPL.UN)
Profiled: Nov. 8, 2011
Then: $17.80 Now: $18.75
Return: +5.8%
S&P/TSX return: -7.3%

A pipeline stock with a five-year average annual return of 25%? Yup. As hard as it will be for Inter Pipeline to repeat that sizzling performance, the future still looks bright, we wrote.

With a dividend payout ratio of less than 60%, numerous expansion projects on the go, and favorable fractionation margins on natural gas, more dividend increases could be coming down the, um, pipe.

Leon's Furniture (Toronto: LNF)
Profiled: Nov. 22, 2011
Then: $11.50 Now: $12.26
Return: +8.7%
S&P/TSX return: -1.9%

Behind Leon's silly commercials is a serious family-controlled company that shuns debt, squeezes costs, and keeps its dividend growing, we wrote.

Sure, a slowdown in the housing market is a concern, but Leon's payout ratio is less than 50% and CEO Terrence Leon said the dividend is sustainable "barring a complete collapse of the economy."

Leon family members-who control more than 70% of the stock-want to keep the dividend checks coming, after all.

Disclosure: John Heinzl owns shares of Inter Pipeline and McDonald's.

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