The hottest stocks in Canada in recent weeks have been the cannabis stocks, but for a lot of investors, they are just too risky. So I’m looking at a safer group of Canadian stocks — specifically, low-risk Canadian stocks with big dividends, explains Timothy Lutts, editor of Cabot Stock of the Week.
These low-risk stocks won’t make you rich overnight, but they will let you sleep well, as they all have low volatility and high dependability. Plus, each one has a positive long-term chart, so you can invest in any one of them and expect to come out ahead in the long run.
Canadian Imperial Bank of Commerce (CM)
One of the big five banks of Canada, Canadian Imperial Bank of Commerce (better known as CIBC) pays a dividend of 4.5%, which is above average for a bank stock. Yet the payout ratio is 46%, so the dividend is well covered by earnings.
In the second quarter, revenues grew 19% to $5 billion (mainly from the acquisition of The PrivateBank and Geneva Advisors), while earnings grew 7% to $2.37 per share. The after-tax profit margin was a plump 21.4%.
Earnings forecasts are a bit difficult, thanks mainly to the unknown of interest rate fluctuations, but analysts are looking for earnings shrinkage of 16% this year (already baked into the stock) and then an increase of 3% next year.
CIBC is definitely forward-looking. It was the first bank in Canada to release an iPhone banking app (in 2010). It was the first bank in Canada to offer all three leading mobile wallets. And it was the first major Canadian bank to introduce free mobile credit scores for clients. Also, CIBC was one of 2 banks to earn the highest overall score in The Forrester Banking Wave: Canadian Mobile Apps, Q2 2018 report.
Pembina Pipeline (PBA)
Pembina pays the highest dividend of the group, 5.0%. But you’ve got to sit through some bumps if you hold this stock, given the ups and downs of oil prices. The company operates over 10,000 kilometers of pipeline across Alberta and British Columbia, moving both natural gas and other petroleum products across the country and into the U.S.
In the third quarter, the company saw revenues grow 66% to $1.48 billion, while earnings soared 77% to $0.33 per share. The after-tax profit margin was 12.6%. The stock's chart looks great, but bumpy, and the current pullback to the stock’s 200-day moving average (now at $33) provides a decent entry point.
Restaurant Brands (QSR)
This plain name owns three of consumers’ favorite fast-food brands—Tim Horton’s, Burger King and Popeyes Louisiana Kitchen. All told, its holdings bring in $30 billion in system-wide sales from over 24,000 restaurants in more than 100 countries and U.S. territories.
Burger King is the biggest contributor to the business, accounting for 67% of revenues, but Popeyes, the smallest contributor, is growing the fastest. In the second quarter, revenues grew 19% from the year before to $1.3 billion, while earnings grew 29% to $0.66 per share. The quarterly dividend is 3.0%.
As to the stock, it enjoyed an 18-month run from 32 to 67, peaking at that level a year ago. That was followed by a pullback to 52 at the April bottom, and since then the stock has been tracing out a narrowing consolidation pattern, with the 56-59 region looking like a good buying zone (the lower the better.)
Telus Corp. (TU)
Telus is one of the major Canadian telecom providers, providing everything from dial-up phone service to internet access to streaming video. (They claim to have the fastest wireless network in Canada.) Long-term trends are excellent, if slow; the company has grown revenues by single-digit percentages every year of the past decade.
In the second quarter, the company added 135,000 new wireless, internet and TV customers, as well as 34,000 new wireline customers. Revenues grew 4% to $2.6 billion, while earnings shrank 1% to $0.53 per share.
Looking forward, analysts are expecting earnings growth of 7% in 2019. The dividend is 4.7%. As to the stock, it’s fallen out of the bed over the past two weeks (from $37 to $34), and I think that provides a decent buying opportunity.
Any one of these low-risk Canadian stocks with big dividends might be a fine long-term holding, but what if you’re more short-term oriented? What if you want to benefit from an up-cycle and then avoid the down-cycle?
For my money, the best bet today is Canadian Imperial Bank of Commerce. It’s had a quick pullback to its 50-day moving average, but it remains in an uptrend, so I think the odds are good that it will see new highs before the others.