Financial Jungle

Drooling over living off passive incomes one day?

Before plunging butt first into the sea of dividend-paying stocks, you must perform your due diligence. Get your hands on every conceivable dividend investing literatures: Dividend Growth, The Dividend Guy, Dividend Money, Dividends Matter and The Investment Zoo.

Then, you will need a few candidates to furnish your stock watch list. Not that these are all dirt cheap at the moment, but given the right entry points, these stocks will serve you well over the long-term to achieve your retirement goals.

1. IGM (3.40%) - The house always wins in casinos, and in the world of mutual funds, IGM is the house of King Kong. Every time a customer buys one of IGM’s array of equity investment products, he’s seemingly swindled anywhere between 2% to 3.5% in management fees. Much of these will eventually funneled to spoil IGM shareholders in the form of dividends. This is why I feel so guilty being an IGM investor. Can you blame me for yearning over this cash cow? The high yield coupled with the traditional dividend hikes in the teens make this one of the most formidable dividend payer in TSX.
2. Manulife (2.20%) - Another King Kong, but this time it’s in the life insurance space. Well managed by one of the most respected CEOs in Canada, Dominic D’Alessandro. Under his helm, Manulife doubled both its revenues and dividends over the past 4 fiscal years, thanks in parts to the brilliant John Hancock acquisition in 2003. The business has been so profitable, D’Alessandra accumulated over $10 Billions in the company vault to scout for other home run acquisitions. Manulife is not only big in Canada, but its operations are well diversified in the US and Asia, and currently penetrating the rapidly growing Chinese economy.
3. TD Bank (3.30%) - With the announced acquisition of New Jersey-based Commerce Bancorp, TD bank is now a true North American bank, according to CEO, Ed Clark. You have got to hand it to this guy for clutching his cash up until the last possible moment - when his Canadian bucks are near the all-time-high and US banks are in dire-straight. If I’m going to entrust my money to someone, that would be Ed Clark, who’s also genuinely composed enough to not succumb to U.S. subprime mortgages; unlike most other banks. The fact that TD sports the cheapest price/book among Canadian big backs and commands the biggest market share in online trading space give you reasons to buy and forget about it.
4. Canadian National Railway (1.60%) - One of the most diversified and efficient railroad business in North America. The CNR stock has been derailed recently by the rising Canadian dollar and ailing forestry sector, but this presents a buying opportunity for a long-term hold. Over the next many decades, CNR will continue to chug along as a big player in a space with strong economic moats. For one thing, it’s too expensive for new entrants to jostle into the railway networks. For another, oil prices will likely remain high, and that will set the stage for trains to surpass trucks as the most efficient mean of transportation. Of course, the fact that Canadian National Railway, Canadian Pacific Railway and legendary long-term investor, Warren Buffett, are all gobbling up other railway stocks is a hint that bargain hunting season had just begun.
5. Encana (1.10%) - When you invest in gas giant, Encana, you own oil and gas properties all over North America as mapped on their Corporate Profile page. This business is a money making machine who understands how to take care of shareholders. Over the past 5 fiscal years, Encana used its enormous cash flow to buy back about 22% of its own shares, while quadrupling its quarterly dividends from 5 to 20 cents. Furthermore, the recent latest record-breaking quarter has satiated Encana with $2.2 billion of free-cash-flow. If we annualize it, that’s $11.72 a share per year. Not bad for a stock trading at around $66.
6. Canadian Oil Sand (6.30%) - Canadian Oil Sand owns a 37% interest in the Syncrude project, a pure play in an oil sand that has stunning reserve life of 40+ years. Compared with the $95.93 oil, Canadian Oil Sand’s 2006 operating cost per barrel is dirt-cheap at $27.07, and it’s anticipated to mark down further due to economies of scale. So far this year, the operating cost per barrel has been $26.70. The trio of low operating costs, higher oil price and production positioned COS to raise quarterly distribution from 40 cents to 55 cents, or a cool 38%.
7. Teck Cominco (2.20%) - With Alcan being taken out, Teck Cominco is crowned as the only conglomerate mining company in Canada, and they only getting bigger with the recent acquisition of copper producer, AUR Resource. After losing a bid for nickel producer, Inco, to Brazil’s CVRD, Teck Cominco returned with a vengeance by adding copper, gold, coal and oil sand to its asset mix. Despite ponying up $4.1 billions for AUR Recourse, Teck Cominco’s balance sheet is still squeaky clean with $1.8 billion in cash. This figure is more than the $1.5 billion in long-term debt, so the company is effectively debt-free. Valuation wise, Tech Cominco is cheap according to an article by Andy Hoffman of The Globe and Mail. That’s because when broken into pieces, the individual segments are trading at lower multiples to their respective peers.
8. TransCanada (3.40%) - TransCanada is a diversified and stable utility company in an industry where all the pipelines in North America are already running at full capacity. The stock offers a safe play in the oil and gas sector without direct exposures to the underlying commodity prices. The yield is attractive, but I like it recently when it’s trading in the low $30’s. With 50 years experience and 59,000 km under its belt, TransCanada will add another 3,456 km through its Keystone project, due to complete in late 2009 or early 2010. This pipeline network will have the capacity to move 590,000 barrels of cruel oil per day from Alberta to US Mid West. It has already secured contracts to send 495,000 barrels per day with an average term of 18 years. If you’re looking for a pipeline investment with a little more yield and lesser growth, check out my post on How To Pick Pipeline Trusts.
9. Reitman (3.50%) - One of the tenets of dividend investing is to plunk your money down when good managements stumble. Fiscal 2008 hasn’t been gentle to apparel and accessories retailer, Reitmans. Unfavourable weather conditions and uninspiring rags from the Cassi experiment, a banner designed for middle aged women with youthful spirits, have torn the stock apart to a new 52-week low, thus pushing yield to a glittering 3.5%. Even though Reitmans stumbled on the recent catwalk, this debt-free retailer does have a long history of delivering superb return on equity and raising dividends. Number of outlets is expected to surpass 1,000 this year or next, and the company is poised to profit from the rising loonie. Opportune dividend investors will have a serious look to see if the valuation is compelling.
10. RioCan Investment Trust (5.9%) - You know what the real estate guys say. There are many uncertainties in the world, but there is one thing for sure. Land. They make them no more. With a few mouse clicks, you can instantly diversify your real estate holdings across Canada by investing in RioCan Investment Trust, which commands a quarter of the Canadian REIT index. RioCan, who owns 207 offices and shopping centres, has increased its annual distributions for 12 years straight. This company is known to be conservatively smart. CEO, Ed Sonshine, along with 4 other senior executives have been with the company since inception. In the first 5 years of this century, RioCan was quick to snap up undervalued properties with 9.3% CAP rate (this is unheard of in Vancouver, by the way). With real estate being high in the past few years, they sold off some non-core properties with CAP rate at around 6.3%.

Disclosure: Out of this list, I own IGM Financial, Canadian National Railway, Encana, Teck Cominco, TransCanada and Reitmans.

Disclaimer: I’m an amateur investor. If this post entertained you, I’ve achieved my goal. Please consult your financial advisor before making any investment decisions.