If you are looking to diversify outside the United States but are leery of exactly where to go, why not simply look north - to Canada? Canada offers a variety of many successful enterprises, some substantially so, and provides you an opportunity to play a bit of currency hedge as well.
While there may initially be concern over investing in Canadian stocks because of taxation placed on the dividends by the Canadian government, most of the problems encountered by US tax filers are settled through the use of an IRS form (1116) to take a tax credit against what the Canadian government takes out, making the whole tax question an issue of paperwork more than anything else. If you are still not sure, see your tax adviser.
Canada is a natural resource rich country, with an abundance of mining and petroleum based industries. There are also finance, high tech, aerospace, biotechnology, and software ventures as well. The Canadian newspaper "Globe and Mail" ranked the top 1000 companies in 2012, by profit, right here.
Some of the companies on that list you will recognize and many you won't. I am going to discuss one that you may or may not have heard of but one that I believe represents a great opportunity for addition to a diversified portfolio for the longer term time horizon.
Enbridge - (ENB) - This is a $35 billion market cap company that provides diversified energy services through a network of pipelines and facilities, all geared towards gathering, processing, storing, and transporting petroleum and petroleum related products.
The company has experienced tremendous growth over the past decade which is really not so remarkable when you consider the macro-economic environment as it relates to geo-politics and global oil. The fact that United States oil demand is shifting away from the Middle East and elsewhere overseas and replacing a significant portion of that with Canadian Oil is driving companies like Enbridge to grow.
For an historical perspective, I looked at the 1 year, 5 year and 10 year performance record of the stock price, the dividend, and the growth rates of both. I also included EPS and calculated P/E. Here is what I found:
Date (Last Trading Day)
YoY Price Growth
YoY Div Growth
Stock Price Growth
Stock Splits - Enbridge had 2 stock splits during the 10 year period. Both occurred in May, both were 2 for 1 forward stock splits, 2005 and 2011 respectively, and are reflected in the data.
Trading volume - In 2004, a rough daily average of trading volume would have been around 60,000 shares. By contrast, during 2012, trading volume averaged roughly half a million shares with million share days happening regularly. An upward trend in trading volume is generally a good sign since it means more people are hearing about the company, greater institutional involvement and, it has been my experience that thinly traded securities lend themselves to greater manipulation.
What is clearly evident from the data is that historically, the overall trends have been extremely positive. For example, had you purchased 100 shares of Enbridge in 2004, your investment would have been around $600 or so and you would have received about $45 in dividends. Held for the long term, in 2012, your investment would have been worth around $17,000 (because of both growth and stock splits) and you would have received somewhere around $450 in dividends throughout 2012!
Enbridge recently held their 2013 Earnings Guidance presentation (December 6, 2012), providing a glimpse into what they expect to see moving into 2013. In a nutshell, they are anticipating an EPS growth rate of 12% to $1.80/share (official guidance is $1.74 - $1.90) with an annual dividend payment of $1.26, up about 12% year over year. Based on this guidance and a P/E ratio consistent with what we have been seeing over the past couple of years, I am expecting the stock price to fall somewhere between $49.81 - $54.15 per share for 2013. (How did I come up with this? I used both DDM and CAPM and finally settled for PFM.)
There are conditions, as mentioned above, that are influencing the growth of ENB and companies that do similar work. Enbridge is well managed and executes their business plan effectively but it is the certain change in where and from whom the United States gets its oil that is significant as we look forward (and I am not discounting other important export demands on Canada's oil such as Asia…I'll cover that some other time).
Currently the USA gets approximately 15% of its oil from Canada and this will inevitably increase. Watching how the Keystone XL pipeline situation unfolds is a good example. The pipeline will (most likely) be built; not because I want it or that I don't want it but because the economics and political implications are so compelling and the companies involved in building it are working with regulators and activists to address concerns. Just recently for example, Nebraska regulators gave the project a boost by saying that the new proposed pipeline route avoids much of the ecologically sensitive areas that caused the U. S. government to deny the building permit last year.
Even if that pipeline isn't built, ENB is investing some $8 billion in its own projects to move oil, primarily from the oil sands in Alberta (Fort McMurray and surrounds) into the United States. These projects are not nearly as visible as the Keystone project and thus, have not generated as much controversy. They are expected to be online by the end of 2015.
As the United States expands the importation of Canadian petroleum products, Enbridge is in a great position to take advantage. They have proven themselves by executing well historically and based on current projections, that growth won't slow any time soon.