In January 2011, I wrote a column about the outlook for the coming year as it related to income-oriented investors. I began by describing the prospects as bleak, with low interest rates continuing to depress returns on such traditional safety-first choices as guaranteed investment certificates (GICs). Income trusts, which had become a prime source of cash flow for many investors, had been almost wiped out by the federal government’s new tax. So what was left?
Dividend-paying stocks, I suggested. I urged readers to put aside the anxieties that lingered from the crash of 2008-09 and take a close look at five equities that offered good cash flow with relatively low risk. So how have they done since? Let’s take a look.
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Fortis Inc. (TSX: FTS) . This gas and electric utility, which is based in St. John’s, was trading at $33.98 at the time and paying a quarterly dividend of $0.29 a share ($1.16 annually). Earlier this year, the company increased the dividend to $0.30 per quarter ($1.20 a year). It marked the 39th year in a row that Fortis has raised its payout, the longest streak by any public company in Canada.
The stock closed on April 20 at $33.39, so we have a capital loss to this point of $0.59 a share. However, we have received $1.46 in dividends so overall we are ahead by 2.6 per cent. That’s not a princely return but it’s a lot better than the overall performance of the Toronto Stock Exchange which fell 9.6 per cent in the same period. It’s also more than you would have received from a big bank five-year GIC, plus the dividends qualify for a tax break.
I’m keeping Fortis on the buy list but only for people who are looking for income. The dividend yield is an attractive 3.59 per cent but the growth potential is very limited.
Enbridge Inc. (TSX: ENB) . Enbridge is Canada’s largest pipeline company and is seeking to enhance its position with the construction of the controversial Northern Gateway pipeline that would carry oilsands output to the British Columbia coast for shipment to Asia and California. It is also the leading natural gas distributor in Ontario, Quebec, and New Brunswick.
Enbridge stock was trading at $28.14 (adjusted for a 2-1 share split) at the start of 2011. It closed on April 20 at $39.59 so we have a capital gain of slightly more than 40 per cent to this point. We have also received $1.26 in dividends for a total return of 45 per cent. Enbridge recently increased its dividend by 15 per cent and now pays $1.13 on an annual basis for a yield of 2.86 per cent based on the current price. I still rate this stock as a strong buy.
Related: As rates rise avoid more utility stocks
Canadian Utilities (TSX: CU). Many people regard utility stocks as dull but in a volatile market a dull stock with good cash flow has strong appeal. Alberta-based Canadian Utilities fits the bill. The shares were trading at $54.40 to open 2011 and were paying a quarterly dividend of $0.403 ($1.61 a year). They closed on April 20 at $66.62 and the dividend was increased by 9.9 per cent to $1.77 a year. We have a total return to date of 26 per cent, including dividends of $2.06 a share. Not bad for a “dull” stock! The current yield is 2.66 per cent and I continue to rate the stock as a buy for income.
Brookfield Infrastructure Limited Partnership (TSX: BIP. UN). Based in Bermuda, this limited partnership (LP) owns and operates utilities and timber assets in North and South America, Australasia, and Europe. The share price at the time I wrote about it in early 2011 was $21.45 and it paid an annualized distribution of $1.10 (U.S.) a share to yield 5.2 per cent. The shares now trade at $30.40 (April 20 close) and the distribution has been increased twice, to $1.50 (U.S.) a year. As a result, the current yield is 4.93 per cent, a little lower than in early 2011 but still very attractive. Our total return so far on this one is just under 50 per cent making this my top-performing pick. I still like it.
Shaw Communications (TSX: SJR. B) . This Calgary-based telecommunications company also owns the Global TV network. It is one of the few major corporations in Canada to pay monthly dividends. At the time I first wrote about it, the payments totalled $0.88 a year for a yield of 4.14 per cent based on a price of $21.26 a share. The annualized dividend has since been increased to $0.97 a share but the stock price has fallen to $19.96 so the yield is now up to 4.86 per cent.
This is the only dividend stock that we have lost money on. The $1.15 per share we have received in dividends is not enough to offset the capital loss of $1.30 leaving us in the hole by $0.15 or 0.06 per cent. Shaw’s recent financial results have been unimpressive and the share price is trending down. Despite the good yield, I can no longer recommend it. If you’re in the market for a dividend stock, choose one of the others on this list but be sure to consult with a financial adviser first.
Related: How to find the best dividend stocks
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. His website is www.BuildingWealth.ca
Image: Illustration by Raffi Anderian/Toronto Star.