About a month ago, I reviewed a US Dividend Portfolio that is being offered by a broker I know. Since the broker is Canadian, he also had a Canadian Dividend portfolio he presents to his clients. I thought of taking a look at this portfolio too and adding my grain of salt.
So here’s the Canadian Dividend Portfolio:
Company Ticker Price Sector Payout Ratio (%) Dividend Yield (%) P/E
BCE Inc BCE 33,9 Telecom Services 74,18 5,4 12,31
Canadian Imperial Bank of Commerce/Canada CM 76,54 Commer Banks Non-US 131,23 4,55 12,66
Bank of Montreal BMO 60,21 Commer Banks Non-US 91,78 4,65 13,06
Power Corp of Canada/Canada POW 27,1 Life/Health Insurance 80,79 4,28 14,42
National Bank of Canada NA 66,3 Commer Banks Non-US 50,06 3,74 11,83
Bank of Nova Scotia BNS 54,58 Commer Banks Non-US 59,21 3,59 14,58
Royal Bank of Canada RY 55,29 Commer Banks Non-US 77,77 3,62 15,32
Toronto-Dominion Bank/The TD 74,93 Commer Banks Non-US 70,27 3,26 12,73
Cascades Inc CAS 6,43 Paper&Related Products 26,67 2,49 8,04
SNC-Lavalin Group Inc SNC 53,6 Engineering/R&D Services 25,22 1,27 21,48
TELUS Corp T 46,57 Telecom Services 60,22 4,29 13,46
Husky Energy Inc HSE 25,6 Oil Comp-Integrated 72,03 4,69 18,63
Shaw Communications Inc SJR/B 22,42 Cable/Satellite TV 65,74 3,93 15,38
Rogers Communications Inc RCI/B 40,15 Cellular Telecom 48,78 3,19 13,01
Thomson Reuters Corp TRI 38,73 Multimedia 113,19 3,09 26,05
Average 45,49 69,81 3,74 14,86
The Canadian portfolio give about the same result
Funny enough, you can build this Canadian dividend portfolio with $20,470$ (including 15 buy transactions at $6 each…you can get $4.95/trade at Questrade 😉 ). Then again, you would own 30 shares of each stock and it would pay… the same yield which is 3.74% (tables are dated October 7th 2010 to make sure we compare apples with apples). So for about the same amount of money, you can get the same level of distribution with Canadian companies. Therefore, if you are scared of the currency risk of trading us stocks, you can get about the same result with a Canadian portfolio.
Enough with the similarities, What is wrong with the Canadian Portfolio
If I compare both holdings, I would go for the US portfolio without hesitation. Why? Because of many reasons:
Diversification: When you take a closer look at the Canadian stocks, you will notice that 7 out of 15 companies are linked to the financial sector. While I think that Canadian banks are a solid investment, I don’t think you should consider investing 50% of your portfolio in a single sector. What if banking rules change? What if they don’t generate as much profit as before because of new compliance rules? You can put all your eggs in one financial basket!
Investment Opportunities: The US P/E Ratio is at 15.62 and the Canadian stocks show a 14.86 ratio. So technically, you should have a better expectation of portfolio growth with the Canadian portfolio. However, I think there is much more money sitting on the side line (in the money market or cash accounts) in the US. Investors seem to be waiting for solid indicators that they are going forward with a more stable economy. Once they are convinced, chances are that these stocks will continue to grow.
Payout Ratio: While the difference is not much, the US portfolio represents a dividend payout ratio of 65% and the Canadian portfolio shows a 69% ratio. If you have to take one or the other, I think that this 4% should still come into play.
Maybe the key for a great dividend portfolio would be a marriage of the two?
While writing this article, I have noticed that both portfolios generate the same level of dividends while having different strengths and weaknesses. I’m thinking of looking at the 30 stocks and building a 15-18 stock dividend portfolio with both Canadian and US companies.
Which one would you chose? Why?
Do you have any preferred stock picks among the Canadian or the US stocks? What else can be added? I’ll be working on building a mixed dividend portfolio and will talk about it later on. Stay tuned!
I have a question, that I would like some feedback with…I am planning on doing the “smith maneuver” with a readiline mortgage from BMO. I have 80% equity in my home, and would like to use the funds to invest in dividend paying stocks. The rate for the interest payment on the mortgage will be 3.5%, and the dividend will be around 4-4.5%. My question is if that is enough of a spread to make it worth while, as far as the risks go? Thanks for all your help.
I would go with mostly US stocks. Today the $ is at par. It might go higher but probably not for long. The CIBC strategists today stated that they think the $ might go down to about 93 cents by March of next year. There’s 7% or more on top of capital gains and dividends!
Why would one choose this type of strategy over something like XDV or the Claymore equivalent?
Thanks.
I like your portfolios, both US and Canadian. Why not now put them together to produce a single “ultimate dividend growth” portfolio which includes a good selection from both: Canadian banks, US health and staples, etc…
One other point. After looking again at the US portfolio, I think I’d switch ABT for PFE, and MCD for YUM. Just a personal preference.
Sorry maybe I’m a little out of date here, but is there not still a withholding tax on US dividends?
As a Canadian, I would blend them. Take the top 70% US and the top 30% Canadian. As another comment mentions, the CDN$ is bound to go down (or US$ is bound to go up if you prefer looking at it that way) and you benefit further. If you are paid in CDN$, you’ll always have a chance to make a buy on the Canadian exchange.