Today's Best Risk / Reward Income Investments, Part I: Canadian Power Stocks 22 comments
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Here are some stocks for the fear AND greed in all of us.
The Problem
In the current market, many income investors are feeling very conflicted.
- They are afraid of buying into an overextended rally
- They are also afraid of missing further gains and dividend yields while sitting on cash
A Solution: Selected Canadian Electric Power Stocks for Steady, High Returns
As my regular readers know, I am not a believer in the current rally, yet I hear the pain of conservative income investors who seek yields that are not only safe, but high.
Why Buy These Canadian Power Stocks?
If you must go long, these Canadian Electric Power stocks are all weather stocks that you can feel safe buying even in this volatile market.
- Safety: They sport some of the safest, most reliable dividends to be found, backed by steady revenue streams and sustainable payout ratios. While they can and do suffer
- High yields that keep you ahead of taxes and inflation
- Payment in Canadian dollars, providing a critical element of diversification out of the “Obamanable shrinking US dollar” for those with heavy USD exposure
- Most are relatively green power producers that will benefit from government incentives
Thus when/if the markets pull back, you can afford to sit with these because they pay you very well while you hold them.
Why NOT to Buy Them
They are relatively low risk, but not without risk. Primary risks include:
- Overall market risk: Like most stocks, these will fall if the overall stock market pulls back, and there are plenty of reasons to suggest that it will. High valuations compared to earnings, a still deeply weakened US and world economy, continuing job losses that threaten whatever fragile recovery there is, a banking system still on life support, etc.
- Low liquidity: These are thinly traded, and thus tend to drop harder than the overall market.
- Currency Risk: If global markets retreat, the CAD tends to fall against the safe-haven currencies: the JPY, USD, and CHF. Thus those seeking diversification out of the USD would suffer additional losses in currency value in the event of another major stock market decline.
These risks are real. That said, however, we believe the CAD will appreciate further over the long term against the USD. Canada’s banking system largely avoided the subprime mess, sparing Canada the need to expand their money supply (which devalues the currency) on anything like the scale of the US. Also, Canada is the West’s largest source of energy, and supplies other key commodities.
The selections below (click to enlarge) are not ranked in order of preference. All make excellent investments that will pay you well in all but the most dire conditions, and have continued to pay (and in some cases raise) dividends throughout the current crisis, proving their reliability.
Conclusion
In the coming installments of this series, we will present additional ideas for uniquely safe, high yields.
Disclosure: The author may have positions in the above mentioned instruments.
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This article has 22 comments:
I followed your advice a few months ago and it paid off nicely.
Everbank just started a Portfolio for protection against a falling US Dollar and it has 5 parts to it: 1) Canadian Loonie, 2) Aussie Dollar, 3) Norwegian Kroner, 4) Gold, and 5) Silver. The Brazilian Real has been the strongest of the world's currencies for several quarters now. It would seem from this information that investing in Canadian dividend paying stocks is now, and will continue to be, a great idea. Do you have any suggestions for Aussie or Norwegian dividend paying stocks?
Thanks
(dotcomjohn@msn.com)
I bought GLHIF.PK (here in the USA) this past January and have been very pleased with the dividends and the recent rise in its share price a few months back. I'd read somewhere that hydro-power funds can trade seasonally, due to the hydrology issues of stronger flow in Summer-Fall and then usually weaker flow in Winter-Spring (since many rivers are frozen and less liquid water is flowing). And, of course, some years there's more precipitation and consequent hydropower flow than in other years.
Any thoughts on this seasonality, Cliff (or anyone else reading)?
On Aug 24 10:50 AM tc1 wrote:
> Thanks, Cliff, for another great offering for investors.
> I bought GLHIF.PK (here in the USA) this past January and have been
> very pleased with the dividends and the recent rise in its share
> price a few months back. I'd read somewhere that hydro-power funds
> can trade seasonally, due to the hydrology issues of stronger flow
> in Summer-Fall and then usually weaker flow in Winter-Spring (since
> many rivers are frozen and less liquid water is flowing). And, of
> course, some years there's more precipitation and consequent hydropower
> flow than in other years.
>
> Any thoughts on this seasonality, Cliff (or anyone else reading)?
Comments?
Thanks for your series of articles Cliff. I believe they are very informative and based on sound logic.
Rick B
I'd think it would be more of a plus, than a drawback, that the bulk of the revenues come from the US; plus, it makes sense. I think it can considered a "given", that we're going to see an increasing push towards "green energy" here, even if, as seems likely, the Waxman Cap and Trade bill dies...something else will replace it.
Given the difference in population between Ca. and the US, it makes sense the bulk of sales would be here (note: I haven't looked at any of the companies mentioned yet, to see where their facilities are located...I'm just using common sense.)
On Aug 24 01:32 PM Bob Mc wrote:
> Virtually all of ATPWF's revenues comes from the US. Isn't this an
> important drawback as compared to the other stocks. I have invested
> in the others and refrained from ATPWF for that reason.
> Comments?
At a glance, the first ticker is a symbol for a stock listed on the pink sheets (where foreign stocks often end up, if not traded as an ADR), the second is a listing from the Toronto exchange. I susepct its the same company.
On Aug 24 03:48 PM User 476275 wrote:
> Can anyone explain the difference between MCQPF.PK and MPT.UN.TO?
> Both of these symbols are called Macquarie Power, but I can't determine
> if they are in any way related. There is a detailed website for MPT,
> but I haven't found one for MCQPF. Are these the same fund, but listed
> on different exchanges?
> Thanks for your series of articles Cliff. I believe they are very
> informative and based on sound logic.
> Rick B
On Aug 24 05:33 PM jg1945 wrote:
> Cliff, interesting stocks and great insight, but how do investors
> get information on them? Tried CBS marketwatch, Yahoo Finance, but
> nothing as far as PE, Dividend, or Website.
They are exempt, as are Cdn REITS, and a few other specific trusts. Some were planning to convert to MLP's but realized that U.S. Unit holders would get whammed by a special tax on MLP's from Canada. (PGH converted last year, then reconverted to a corpn., this July to avoid the taxation to U.S. unit holders).
This special taxation provision was enacted in October, a couple of years ago, by the Harper Govt., to "prevent abuse of flow-through profits" from business trusts...and it had a severe, negative effect on a lot of Cdn Unit Trusts, except, slowly, people (investors) woke up to the facts of the trusts future write off's of various business expenses when they convert to corporations (Unit Investment Trusts can't write off depletion, etc., but Corporations can, so the tax burden may be pretty small until 2013.)
I currently hold ATPWF and many other Cdn Units, some purchased directly at the TSX and others from the "pink sheet" equivalents...when commodity prices go up, the dividends go up, if they are producers...but if they're in services or utilities, their values and dividends tend to move with the economy.
Currently, a 15% Cdn income tax is withheld on any dividends paid, but in a taxable account...this 15% is a tax-credit (whether you file a standard or deduction-filled return)on U.S. Federal returns. If foreign taxes exceed $400.00 U.S., one can still get a credit by filling out a tedious, but simple additional form, because the U.S. has a tax-treaty with Canada (and many other countries).
On Aug 24 01:32 PM Bob Mc wrote:
> Virtually all of ATPWF's revenues comes from the US. Isn't this an
> important drawback as compared to the other stocks. I have invested
> in the others and refrained from ATPWF for that reason.
> Comments?
Rick B
My question regarding Atlantic Power's predominately US revenues were related to the currency aspects of stock. That is, one of the advantages of the stocks recommended in this article are the dividends paid in the stonger Canadian currency (stronger than the US$). Are the advantages of the stronger Canadian $ dividends offset by the fact that Atlantic Power's revenues are mostly in US$ ... which will act as a drag on revenues. Won't this effectively neutralize the positive currency aspects of the dividend?
Also, I understand you can't get a rebate of the 15% if you hold the stock in a non-taxed account like an IRA. I have some in my SEP IRA anyway because the yield is still strong, but I am rooting fo rmore conversions which I understands will prevent the withholds.
On Aug 24 01:32 PM Bob Mc wrote:
> Virtually all of ATPWF's revenues comes from the US. Isn't this an
> important drawback as compared to the other stocks. I have invested
> in the others and refrained from ATPWF for that reason.
> Comments?
I hate the thought of losing the yield from the notes, but November redemption would leave you with the stock at a net cost of $2.94 (Canadian) paying a dividend of 15.6% (Canadian).
The main problem (or attraction) is that you get so much cash returned to you if they do redeem, that you will have to find another home for it. Still, that's not such a bad problem.
If they don't redeem, they have been clear that cash flow from projects makes payouts sustainable into 2015. My guess is that they will not redeem and will make another acquisition. Fortunately, they don't overpay, and their project debt is non-recourse to the parent. It's a pretty solid investment. Just don't panic about stock moves, because it is thinly traded.
On Aug 24 03:48 PM User 476275 wrote:
> Can anyone explain the difference between MCQPF.PK and MPT.UN.TO?
> Both of these symbols are called Macquarie Power, but I can't determine
> if they are in any way related. There is a detailed website for MPT,
> but I haven't found one for MCQPF. Are these the same fund, but listed
> on different exchanges?
> Thanks for your series of articles Cliff. I believe they are very
> informative and based on sound logic.
> Rick B
On Sep 21 11:30 AM User 444874 wrote:
> they are one and the same in case you have not heard. it is run by
> an investment bank in the "the land down under. it is a canadian
> company trading in us market listed on yahoo as mcqpf.pk. hold stock
> and have for extended period.