The hottest stocks in Canada in recent weeks have been the cannabis stocks, but they’ve also been extremely volatile—in both directions. Moves of 10% and even 20% are not uncommon. For a lot of investors, that’s just too much risk. So today I’m looking at a safer group of Canadian stocks—specifically, low-risk Canadian stocks with big dividends.
These low-risk Canadian stocks won’t make you rich overnight, but they will let you sleep well, as they all have low volatility and high dependability. Plus, each one has a positive long-term chart, so you can invest in any one of them and expect to come out ahead in the long run.
Low-Risk Canadian Stock #1: Canadian Imperial Bank of Commerce (CM)
One of the big five banks of Canada, Canadian Imperial Bank of Commerce (better known as CIBC) pays a dividend of 4.5%, which is above average for a bank stock. Yet the payout ratio is 46%, so the dividend is well covered by earnings.
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In the second quarter, revenues grew 19% to $5 billion (mainly from the acquisition of The PrivateBank and Geneva Advisors), while earnings grew 7% to $2.37 per share. The after-tax profit margin was a plump 21.4%.
Commenting on the quarterly results, CEO Victor G. Dodig said, “We are executing well on our strategy to build a relationship-oriented bank for a modern world, while delivering strong and consistent returns and growth to shareholders. We are pleased with the momentum that our North American platform is gaining as we find new ways to serve our clients on both sides of the border.”
Earnings forecasts are a bit difficult, thanks mainly to the unknown of interest rate fluctuations, but analysts are looking for earnings shrinkage of 16% this year (already baked into the stock) and then an increase of 3% next year.
CIBC is definitely forward-looking. It was the first bank in Canada to release an iPhone banking app (in 2010). It was the first bank in Canada to offer all three leading mobile wallets. And it was the first major Canadian bank to introduce free mobile credit scores for clients. Also, CIBC was one of 2 banks to earn the highest overall score in The Forrester Banking Wave: Canadian Mobile Apps, Q2 2018 report.
As to the chart, it’s been generally positive, running from 85 to 96 over the past four months, so the current drop—right down to the 200-day moving average—provides a good buying opportunity.
Low-Risk Canadian Stock #2: Pembina Pipeline (PBA)
Pembina pays the highest dividend of the group, 5.0%. But you’ve got to sit through some bumps if you hold this stock, given the ups and downs of oil prices.
The company operates over 10,000 kilometers of pipeline across Alberta and British Columbia, moving both natural gas and other petroleum products across the country and into the U.S.
In the third quarter, the company saw revenues grow 66% to $1.48 billion, while earnings soared 77% to $0.33 per share. The after-tax profit margin was 12.6%.
Commenting on the results, CEO Mick Dilger said, “We are seeing strong customer demand for our services, leading to higher volumes and increased utilization in the Pipelines and Facilities Divisions, combined with rising commodity prices which drive solid performance in our Marketing business. As well, the recent strengthening of crude oil and condensate prices is a welcome development for our customers.”
In the Pipelines Division:
- Pembina continues to make progress on the Phase IV and Phase V expansions of its Peace Pipeline system, with an expected in-service date of late 2018.
- Pembina continues to make progress on its Phase VI Peace Pipeline expansion which includes: upgrades at Gordondale, Alberta; a 16-inch pipeline from LaGlace to Wapiti, Alberta and associated pump station upgrades; and a 20-inch pipeline from Kakwa to Lator, Alberta. The approximately $280 million Phase VI expansion is expected to be in service in early 2020.
In the Facilities Division:
- Pembina will construct new fractionation and terminaling facilities at the company’s Empress, Alberta extraction plant (the “Empress Expansion”) for a total expected capital cost of approximately $120 million. These facilities have an anticipated in-service date of late 2020.
- The Company continues to advance the construction of a 1 million barrel ethane storage facility located near Burstall, Saskatchewan for a total expected capital cost of approximately $189 million. The Burstall Ethane Storage is tracking on schedule with the expected in-service date of late 2018.
- Pembina is continuing the development of its liquefied petroleum gas export terminal (the “Prince Rupert Terminal”) on Watson Island, British Columbia. The Prince Rupert Terminal is anticipated to be in service mid-2020—subject (as always) to regulatory and environmental approvals.
As to the chart, it looks great, but bumpy. Over the past two years the stock has climbed from 27 to 37, and the current pullback to the stock’s 200-day moving average (now at 33) provides a decent entry point.
Low-Risk Canadian Stock #3: Restaurant Brands (QSR)
This plain name owns three of consumers’ favorite fast-food brands—Tim Horton’s, Burger King and Popeyes Louisiana Kitchen. All told, its holdings bring in $30 billion in system-wide sales from over 24,000 restaurants in more than 100 countries and U.S. territories.
Burger King is the biggest contributor to the business, accounting for 67% of revenues, but Popeyes, the smallest contributor, is growing the fastest.
In the second quarter, revenues grew 19% from the year before to $1.3 billion, while earnings grew 29% to $0.66 per share.
The quarterly dividend is 3.0%.
As to the stock, it enjoyed an 18-month run from 32 to 67, peaking at that level a year ago. That was followed by a pullback to 52 at the April bottom, and since then the stock has been tracing out a narrowing consolidation pattern, with the 56-59 region looking like a good buying zone (the lower the better.)
Low-Risk Canadian Stock #4: Telus Corp (TU)
Telus is one of the major Canadian telecom providers, providing everything from dial-up phone service to internet access to streaming video. (They claim to have the fastest wireless network in Canada.)
Long-term trends are excellent, if slow; the company has grown revenues by single-digit percentages every year of the past decade.
In the second quarter, the company added 135,000 new wireless, internet and TV customers, as well as 34,000 new wireline customers.
Revenues grew 4% to $2.6 billion, while earnings shrank 1% to $0.53 per share. Looking forward, analysts are expecting earnings growth of 7% in 2019. The dividend is 4.7%.
As to the stock, it’s fallen out of the bed over the past two weeks (from 37 to 34), and I think that provides a decent buying opportunity.
The Best Stock of the Four
Any one of these low-risk Canadian stocks with big dividends might be a fine long-term holding, but what if you’re more short-term oriented? What if you want to benefit from an up-cycle and then avoid the down-cycle?
For my money, the best bet today is Canadian Imperial Bank of Commerce (CM). It’s had a quick pullback to its 50-day moving average, but it remains in an uptrend, so I think the odds are good that it will see new highs before the others.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More