8 Rip-Roaring Canadian Income Stocks

11/02/2011 3:00 pm EST

Focus: GLOBAL

Robert Gorman

Chief Portfolio Strategist, TD Waterhouse Canada, Inc.

High-yield plays north of the border look very attractive to Robert Gorman, Chief Portfolio Strategist for TD Waterhouse Canada, as he explains with plenty of examples in this exclusive interview with MoneyShow.com.

Give us some of your favorite selections within the Canadian stock market.

Sure. I think one of the big stories within the Canadian market is that dividend yields are abnormally high versus bond yields. Dividend growth stocks should do very nicely as a result.

One good illustration would be Power Corporation (Toronto: POW), which controls Investors Group and Great-West Life. The stock has really not moved in the past few years, but you’re being paid a 5% dividend yield, which is very handsome at this stage of the game. I think the stock will appreciate in coming years as well.

Another name would be Shaw Communications (SJR), the largest cable company, with a dividend yield of 4.4%. They have very wisely avoided direct movement into the wireless market, which is very competitive and subject to shrinking margins.

Some of the banks have really pulled back this year, and are really high quality. Royal Bank (RY) and Bank of Nova Scotia (BNS) also sport hefty dividends.

If we move out of the financials and the interest-rate sensitives into some of the more commodity-oriented stocks, Suncor (SU) is a very high-caliber name in the oil sands. It’s come off 25%—very inexpensive. If you’re looking for something with a higher stream of income from that same industry, look at Canadian Oil Sands (Toronto: COS).

On the materials side, my favorite play is in fertilizer companies, which are a great way to participate in the agriculture theme going forward. Potash Corporation of Saskatchewan (POT) and Agrium (AGU) are two of the best ways to go—very high-quality names in that sector. So those are a few key Canadian names.

Are all of these available to US investors on the US exchanges, or are some of them traded only on Canadian exchanges?

Not all will be on US Exchanges, though some are interlisted…Potash being an example, as would be the Royal Bank. If they’re not traded there, you can buy them on the TSX, which of course is a very liquid market as well.

Do you own any of these, either professionally or personally?

They’re part of our client portfolios. I’m a client as well, so yes, I would own them as a consequence.

Let’s shift gears a bit. I wanna ask you a bit about your thoughts on the fixed-income side and where you see that headed.

Well, essentially, we are coming to the end of a 30-year bull market in bonds. We’ve just seen bond yields go from the teens down to about 2%, and I think that has pretty much run its course at this stage of the game.

You want to be defensive when it comes to bonds, and your best bet is probably to go into high-grade corporate issues, which have two advantages:

  • A higher stream of income
  • Shorter duration, which means less susceptible to the adverse impact of rising yields.

In the coming year, I expect bond returns to be fairly modest—1% to 3%, essentially coupon returns—and again, focus on those high-grade corporates. In the US, look to the tax-free municipals which have a much higher after-tax stream of income for investors.

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