It has been a long time since the market offered RRSP investors a chance to buy so many top dividend-growth stocks at such discounted prices.
Investors are worried that trouble in the energy sector is going to set off a wave of unemployment across Canada. That, in turn, would probably be the pin that pricks the housing bubble.
When you look at the Big Five, the scenario is probably the scariest for CIBC because it has heavy exposure to both energy companies and the residential housing market.
So why am I recommending it?
As ugly as things may appear, CIBC is more than capable of riding out the downturn.
The company finished Q4 2015 with $163 billion in Canadian residential mortgages. Uninsured loans represent just 36% of the portfolio and the loan-to-value ratio on that component is 61%, so the housing market would really have to fall off a cliff before CIBC takes a big hit.
That is certainly possible, but most analysts expect a gradual decline in house prices.
As for energy loans, CIBC ended Q4 with $17.3 billion in direct exposure to oil and gas companies. More than 75% of the loans are investment grade, and drawn exposure was $6.1 billion as of the end of fiscal 2015.
At a recent investor conference CEO Victor Dodig said oil loans account for about 2% of the bank’s total loan book and that the portfolio could see about $650 million in pre-tax cumulative losses based on a three-year stress test with oil at $30 per barrel.
Oil currently trades for less than $30, but the price is unlikely to average that low for three years. If it does, CIBC can easily weather the storm.
CIBC pays a quarterly dividend of $1.15 per share that yields 5.5%.
Shaw is going through a major transformation, and the next 12 months are going to be pretty hectic.
The company announced two large deals in recent weeks that are designed to help the cable provider compete in the rapidly changing media and telecoms market.
Shaw is buying Wind Mobile in a move that should put it on a level playing field with Telus, Rogers, and BCE. The addition of a mobile business means Shaw will be able to offer clients a similar TV, Internet, and mobile package that subscribers now get from the other players. This should help slow down the exodus from Shaw’s cable business and help attract new Internet subscribers who want to get all of their services from one company.
Shaw is also selling its entire media business to Corus Entertainment. The deal will provide the funds needed to pay for the Wind Mobile acquisition and it eliminates some of the content risks that could come as a result of the new pick-and-pay system for TV subscribers.
The shares have pulled back to the point where there shouldn’t be much more downside, and investors get a nice 5% yield while they wait for better days.
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Fool contributor Andrew Walker has no position in any stocks mentioned. The Motley Fool owns shares of ROGERS COMMUNICATIONS INC. CL B NV. Rogers Communications is a recommendation of Stock Advisor Canada.