Industrials have been my favorite sector for the fourth quarter of this year; my latest recommendati...
A Top Canadian Pick
10/25/2012 10:55 am EST
Income and Canada expert Roger Conrad discusses some of the key income opportunities in Canada, and has one income stock he likes the best.
New and old Canadian opportunities. We're here with Roger Conrad, who's going to talk to us about what's happening in Canada and where the opportunities are.
Thanks, Gregg. Well, we just had our 100th issue of Canadian Edge.
Thank you very much. It's a good time to do a little bit of retrospective thought, and I think the good news is, a lot of the trends that carried us through to some pretty good returns in those years are still holding up.
I think Canada still remains a country where the fiscal balance is stronger than the US. It's a currency from where they produce a lot of resources, so that's also well positioned against the US dollar, which is good for US investors.
Most importantly, there are a lot of companies there that are doing well. Now, they can pay big dividends even though they're organized as corporations. Many of the former income trusts, a lot of people thought they would go down the tubes very quickly after they had to start paying taxes, and they've really proven that very wrong. Moreover, they have continued to pay the kind of dividends they paid when they were income trusts.
Right, I think that's ironic. As you were-I was thinking that one of the first issues, that was when the Canadian government came in and said that the income trusts were over. And everybody said that they were doomed, that the yields were never going to be there, the companies were never going to survive. And here we are in the 100th issue.
Isn't it amazing? I mean, in the two weeks after they made that announcement, which was Halloween night-and I still remember that Halloween night coming back from trick or treating with the kids and so forth, and thinking this can't be, they're not doing this-but it wiped out $24 billion and a couple of weeks of wealth.
Yeah, people wrote this sector off. But our approach to the group from the beginning was that we're looking for good companies that are growing their dividends, and that really sustained us on this. I mean, we changed some of the companies through the years in the portfolio, but looking back at the original portfolio mix we had, we still have six of those companies in the portfolio and they've continued to do well.
So, the lesson in retrospect is that buying good companies usually pays off, and you have to get rid of them if things go badly. I think my performance could have been a lot better if I'd done that in certain circumstances, but I think going forward I'm seeing a lot of opportunity in a whole range of areas.
Again, it comes back to a country that's favorable-favorable picture there, good currency, and a lot of companies that are growing their businesses, even though they're paying out a lot of their earnings to shareholders.
So what's your favorite?
Well, I think for someone who's real conservative, take another look at Pembina Pipeline (Toronto: PPL), which was an income trust. It was one of our original top ten portfolio, and it's done really, really well.
But they're still doing the same kind of thing they were doing then, which is building energy midstream assets in Canada-connecting the oil sands, connecting the natural gas liquids area, connecting the shale rich areas of Canada-which don't get a lot of press, but are quite lucrative there.
And there's going to be a lot of exporting going to Asia. They're not building the big pipes, but I think that's going to really mean a lot of new projects for them going forward. So as they add new projects, they add cash flow, they boost dividends, and it's a really nice combination.
It's been a great combination the last eight-plus years, and I think it's going to continue to be for a long time to come. It's also a nice kind of investment to have with some of the uncertainty in the global economy, because your revenues are really reliable, and have proven in 2008 they can hold up even under the worst possible environment.
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