The Magnificent 7: Canadian Yields

07/29/2013 8:00 am EST


Roger Conrad

Chief Analyst/Managing Partner, Capitalist Times

2013 has been a challenging year for Canada's equities, and currency and income stocks have been among the Toronto Stock Exchange's biggest losers; this adds up to an opportunity for savvy investors to buy shares of high-quality Canadian dividend payers at a discount, says Roger Conrad in Capitalist Times.

Dividends paid by these magnificent seven are considered qualified income for US tax purposes. Canada withholds 15% of dividends paid to US investors in taxable accounts, which can be recovered by filing a Form 1116 with your US taxes. Dividends paid to US IRA accounts aren't subject to this withholding.

Blue Ribbon Income Fund (TSX:RBNU) (OTC:BLUBF) is a closed-end fund that holds a wide range of dividend-paying Canadian equities. The fund currently trades at a 6.8% premium to its net asset value, reflecting the management team's solid track record.

Brookfield Real Estate Services (TSX:BRE) (OTC:BREUF) serves an umbrella organization for realtors and real-estate brokers.

This business model generates a steady stream of earnings, though the stock has treaded water this year amid concerns that Canada's housing market is headed for a prolonged slump.

Brookfield Real Estate has positioned itself to weather any storm and take advantage of its rivals' weakness. With a dividend yield of 8.8%, shares of Brookfield Real Estate Services rate a buy up to US$14.00.

Canadian Apartment Properties REIT (TSX: CAR-U) (OTC:CDPYF) owns a diversified portfolio of high-quality apartments that routinely exhibit occupancy rates of at least 98%.

The conservatively run company has moved aggressively to refinance property-related and corporate debt at lower interest rates.

Acquisitions enabled the REIT to hike its dividend last August—the first monthly increase since late 2003—and again in May, 2013. Offering a superior yield to similar US-listed REITs, Canadian Apartment Properties REIT rates a buy up to US$24.00 per share.

Canada boasts one of the world's strongest financial systems, and this strength translates into revenue security for Davis + Henderson Corp. (TSX:DH) (OTC:DHIFF), which provides a range of data-related services to Canada's largest banks and their US counterparts.

A former income trust, Davis + Henderson in 2011 trimmed its payout to CA$0.30 per quarter from CA$0.1533 per month. But the company has hiked its dividend twice since converting to a corporation and appears on track to do so again in November 2013. Buy Davis + Henderson up to US$24 per share.

EnerCare (TSX:ECI) (OTC:CSUWF) has increased its dividend three times since slashing its payout in September 2009, a move that stemmed from an unfavorable regulatory decision relating to its water and electricity sub-metering business. This situation was ultimately resolved in the company's favor.

The firm generates the bulk of its earnings from water-heater rentals. Sub-metering revenue climbed 29% from year-ago levels, as the firm won more contracts from apartment owners. Sub-metering measures individual tenants' water and energy use in multi-family complexes.

EnerCare's shareholders approved the firm's preferred slate of directors, thwarting yet another attempt by certain major investors to stack the board and force a sale of the company to the highest bidder. EnerCare rates a buy up to US$9 per share.

Premium Brands Holdings (TSX:PBH) (OTC:PRBZF) produces, markets, and distributes branded specialty-food items. This vertical integration has helped the firm to control costs throughout the value chain and pursue growth opportunities in niche markets.

Premium Brands Holdings in March 2013, announced a 6.3% increase to its quarterly dividend. Although other rivals have struggled, Premium Brands Holdings' solid profitability suggests that more payout hikes could be in store. Buy Premium Brands Holdings Corp up to US$20 per share.

Shares of RioCan Real Estate Investment Trust (TSX: REI-U) (OTC:RIOCF) have lagged this year because of concerns about weakness in Canada's real-estate markets.

The shopping-center owner raised its dividend in December 2012, ending a dry spell that dates back to late 2008. And management has indicated that there's more to come, as the firm realizes the benefits of its increased scale.

Since the end of 2009, RioCan REIT has grown its revenue by almost 50%, fueled by a series of opportunistic acquisitions in the US and Canada. In the event that Canada's real estate market slumps, we expect RioCan REIT to weather the storm and take advantage of its superior scale to acquire high-quality properties at favorable prices. The rate a buy up to US$25.

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