Investing Abroad: Canadian Stocks
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Diversification is the best defense against global uncertainty. Living abroad, that is one truth that I have come to appreciate more and more. With so much uncertainty in Europe and the rest of the world, we sometimes forget that truth. In these times of uncertainty, many investors seek the safety of good US companies, avoiding the rest of the world completely. Diversification means more than just different sectors of the US economy. Diversification also means foreign companies that will protect your portfolio from domestic risk.
The simplest way for individual investors to achieve adequate international diversification is through an ETF. The iShares MSCI World Index Fund will give investors sufficient global diversification, with a decent dividend to boot. For investors looking for a more hands-on approach, below are five Canadian companies that might be suitable for a more globally diversified portfolio.
1. Bank of Montreal (NYSE: BMO) is Canada’s oldest bank (196 years in business), as well as Canada’s largest bank by total deposits. If you are looking for certainty and stability in the very uncertain and unstable global financial sector, Canadian banks are a great place to start looking. Since the financial crisis, Canadian banks have been praised for their conservative lending practices, strong levels of capital and governmental and managerial oversight. Qualities that are nearly the exact opposite of everything you have ever heard about American and European financial institutions. And Bank of Montreal is arguably the best of those Canadian banks.
As it might be expected from such an old company, Bank of Montreal is the longest-running dividend paying company in Canada (183 years and counting). The bank’s dividend policy is to pay out about half of its earnings as dividends each year. Nothing says stability like nearly 200 years of dividend payments and a 45-55% payout ratio each year (currently 51.7%).
2. Rogers Communications (NYSE: RCI) is a telecommunications, media and professional sports conglomerate. Rogers is Canada’s largest wireless phone service provider, as well as a leading provider of home phone, cable TV, broadband internet and home monitoring service. Rogers is also Canada’s largest book publisher and one of Canada’s largest over-the-air TV and radio broadcasters.
Rogers is also a powerhouse in Toronto professional sports. They are the 100% owner of the Toronto Blue Jays (MLB). They also have a 37.5% stake in Maple Leaf Sports and Entertainment, which owns the Toronto Maple Leafs (NHL), Toronto Raptors (NBA), Toronto FC (MLS) and the Toronto Marlies (AHL). Professional sports ownership is not necessarily the best business to be invest in. The primary goal of team ownership is spend money, sign players and win games. Making money comes secondary to that goal. While sometimes these two goals can occur at the same time, that is not always the case.
3. Agrium (NYSE: AGU) is a producer of plant nutrients and specialty fertilizers. Together with fellow Canadian PotashCorp and the American Mosaic Company, Agrium is part owner of Canpotex (Canadian Potash Exporters), the world's largest potash exporter. Canpotex is likened to a cartel by some. The OPEC of fertilizers, if you will. While cartels are often bad for the buyers of products, they are great for the companies that make up the cartel. Canpotex effectively controls a third of the world’s potash capacity.
Recently (Aug. 14) it was disclosed that Jana Partners amassed a large stake in Agrium. The purpose of Jana’s stake is to agitate for a breakup of Agrium’s wholesale and retail businesses as a way to unlock shareholder value. Jana Partners previously pushed for the breakups of Marathon Petroleum and McGraw-Hill (they were successful in getting that done). Agrium has thus far disagreed with the proposal to break up the company, but Jana Partners has a good track record of getting what they want.
4. Valeant Pharmaceuticals International (NYSE: VRX) is Canada’s largest publicly traded pharmaceuticals company. Over the last couple of years, Valeant has been perusing the strategy of growth through acquisitions. Many acquisitions. Instead of looking for the next mega-blockbuster drug, Valeant has been purchasing small companies that are developing or have developed more of a niche drug offering. Being the constant acquirer of companies can usually hurt a company’s balance sheet, but Valeant has been smart about their acquisitions, acquiring these companies for a relatively low premium.
5. TransCanada Corp. (NYSE: TRP) is an energy company involved in infrastructure, power generation and natural gas storage. Almost half of the company’s revenues come from their natural gas pipelines, with power generation making up most of the remaining revenue. For the general public the company is currently best known for its proposed Keystone XL Pipeline and all of the partisan political bickering surrounding it. Despite the politics of this particular pipeline, the United States is blanketed in pipelines and TransCanada has nearly 60,000 kilometers (37,282 miles) of pipelines in North America. It is likely that the Keystone XL Pipeline will be approved in some form or another eventually (likely after the November elections) once there is little for politicians to gain from politicizing the issue further.
Are these five Canadian companies suitable for your own diversified portfolio? That I cannot say. Use this list as a good stepping-off point for your own research into good companies in Canada and elsewhere in the world. Please contact a tax professional about the suitability of international companies in your portfolio.
WhichStocksWork has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend PotashCorp, Rogers Communications (USA), and TransCanada. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.