Is there a sector in Canada to keep an eye on?
Insulated from much of the damage caused by the run up in housing prices in the U.S. prior to 2007, the Canadian economy did not experience the deep recession that the U.S. encountered. Since its banking system did not run into many problems, banks did not tighten their lending standards significantly. This has caused consumer spending to hold up relatively well despite economic problems throughout the world. Is there a sector in Canada that could benefit from this?
- In the past 10 years, the iShares MSCI Canada Index increased by 134.65%, while the S&P 500 Index increased by 33.20% . Also during the past 10 years, the Canadian dollar has appreciated by 32.99% against the US dollar and the two now are trading close to parity. Clearly, the Canadian markets have outperformed the US markets over this time period.
- In many respects, Canadian telecom companies are well equipped to provide services to the increasing number of high-end consumers in Canada. Wireless providers focus on increasing the number of customers buying smartphones because these customers tend to spend more money on data plans. Similarly, cable companies emphasize the growing use of digital cable: customers with digital cable typically spend 50% more per month .
- Three Canadian telecom companies that we are analyzing right now currently all have dividend yields of higher than 4.30% and free cash flow yields of greater than 5% . This means that these companies are able to continue making investments into their growing broadband networks, while at the same time generating more cash for dividends and share buybacks. With all three having reasonable 3-year dividend ratios, they should be able to maintain their strong dividends even if a global slowdown occurs.
Dividend yield investing may not be suitable for all investors. You should never invest solely on the basis of dividends. Higher dividends will result in lower retained earnings. Investments paying dividends do not carry lower risk. Dividend payments are not guaranteed by the issuing entity. The issuer can discontinue the dividend at any time. Dividend payments reduce the price of the security by the amount of the paid dividend.
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www.finance.yahoo.com 26 June 2012.
www.google.com/finance. 26 June 2012.
www.morningstar.com. 26 June 2012.
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