When investors buy a stock primarily for its dividend, the one thing they desperately don’t want to happen is a lowering or eliminating of the dividend.

Investors want to be paid

So how do you figure out how safe the dividend is? What metrics measure the safeness of a company’s dividend?

The dividend-payout ratio is the best measure of dividend safety. The dividend-payout ratio is the percentage paid out to stockholders of the total net income of a company.

The dividend-payout ratio is basically common sense. If a company pays out 100% of its net profits and there is a dip in profits across one quarter or one year, then the dividend payment is threatened.  But if the dividend payment is only 30% of a company’s net income, then it is unlikely to be lowered or eliminated.

Top dividend stocks with low payout ratios and high yields

Three top dividend stock picks are Corus Entertainment Inc. (TSX:CJR.B), Boardwalk REIT (TSX:BEI.UN), and Genworth MI Canada Inc. (TSX:MIC) because they have great coverage on their dividends in addition to having respectable, consistent, long-term dividend-growth rates.

Corus Entertainment Inc. boasts a 9.5% dividend payout with a low 24.5% dividend payout ratio and a dividend-growth rate of 11.1% over the last five years.

Boardwalk REIT sports a 4.81% dividend payout with a very meagre 21% dividend payout ratio and a decent 6.1% dividend-growth rate over the last five years.

Genworth MI Canada Inc. pays a 5.29% dividend with a 43% dividend payout ratio and an 11% dividend-growth rate over the last five years.

These stocks offers portfolio diversification through investment in three different industries. Purchasing all three stocks in equal measure achieves a 6.53% blended dividend payout.

Advantages to holding these high-yielders

If the profits in the company go down appreciably, the dividends can still be paid out comfortably because the payout ratios are so low on each of these stocks.

There is room for these companies to increase their dividends in the future because their dividend-payout ratios are so low.

These companies’ dividend rates are high, making their stocks more attractive to investors compared to their peers. Increased buying demand should raise the stock prices of these companies.

By retaining a high percentage of their net income, these companies have more capital available to invest in organic growth, increasing the possibility of higher profits and larger dividend payments.

One caveat

Western governments are all deeply indebted, and demographics are working against them. Sooner or later, governments will be forced to resort to “soak-the-rich” taxes.

Thus, one caveat on purchasing any dividend stock for the long term is the possibility that the Federal Government could change its tax policy, so the yields are taxed at rates higher than today’s, decreasing anticipated income.

The post 3 Ultra-Safe, High-Yield Dividend Stocks appeared first on The Motley Fool Canada.

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Bombardier, Inc. (TSX:BBD.B) is the perennial green shoot that never reaches its economic potential. The stock hit its all-time high in February 2000, over 16 years ago, at $26 per share. It bottomed out in February 2016 at 80¢ per share.

Why are Bombardier Class B shares mired in a continuous bear market? There are two major reasons for this chronic underperformance.

The catch 22

Bombardier relies on the Canadian Federal Government and the provincial governments of Quebec and Ontario for investment capital.

These governments, understandably, only inject cash under the condition that domestic jobs are protected. However, to be a truly global competitor, the company must lower costs by moving its manufacturing base offshore.

Bombardier’s conundrum arises from being held hostage by corporate welfare. High labour costs, regulatory red tape, and market proximity make staying primarily in Canada less profitable, but Canadian governments won’t finance their offshore operations.

Strangled by family ties

The largest obstacle to accessing financing from outside investors is Bombardier’s dual-class share structure.

The Class A (BBD.A) special voting shares carry 10 votes per share, versus one vote for every Class B (BBD.B) share. The special Class A shares represent 53.4% of the voting rights and are controlled by eight members of the founding Bombardier-Beaudoin family.

What is the best way to scare the bear?

If the special voting rights are cancelled, then Bombardier is released from its sole dependence on government money.

Hedge funds and activist shareholders are stymied by the undemocratic practice of special voting shares. Capitalism and democracy share one simple truth: all votes are equal. No equity investor wants to be in Bombardier if their vote can be cancelled by an outmoded hierarchical proprietorship.

A family ownership structure offered loyal, stable management committed to the long term at the company’s founding in 1942. The passage of time has proven that what was once an anchor is now a restraint, discouraging outside investment and disallowing global mobility.

The key to solving Bombardier’s problem rests on the Quebec government redefining its relationship with Bombardier from nanny investor to commercial partner.

Bombardier is a strategic player responsible for 2% GDP in Quebec’s export economy. The company’s success plays on the fact that the Quebec government is the hefty guarantor that attracts prospective large customers to Bombardier.

Before making the next cash injection, the Quebec government must insist that the founding family members convert all their Class A special voting shares to Class B shares; they would receive one Class B share for every converted Class A share.

This conversion would unite legacy and common shareholders in requiring the best management, resistance to corporate raiders, and solid shareholder returns. Quebec would realize maximum economic benefits as its strategic partner realizes maximum profits.

Bombardier will remain grounded until its voting shares go the way of Sony’s Betamax video cassettes. Until then, Bombardier will never go completely broke thanks to the tethers of Canadian nanny governments, but neither will it climb to $26 or even $3 per share.

The post 2 Major Problems Grounding Bombardier, Inc. appeared first on The Motley Fool Canada.

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If executed, this takeover would give the combined companies almost 50% of the entire Canadian medical cannabis market. It seems Canopy has torn a phrase from the late Hunter S. Thomson: “When the going gets weird, the weird turn pro.”

Over the last two or three days, Canopy has traded like an institutional stock, showing little volatility, while establishing price stability that is uncharacteristic of this high flyer in the nascent cannabis equity sector.

How can this weird change be explained?

The Mettrum deal cements the fact that at these high price levels, Canopy’s stock is attractive enough for competitors to accept as consideration for a takeover. This deal signals to investors that the Canopy market capitalization is not as far-fetched as punters presumed only a short time ago.

The recent stability in price illustrates that a big money broker is supporting and championing the stock at these levels. A big money market maker or two must have taken a large share position in Canopy, which they are protecting at the current price level. The short whisperers are muted, at least for the moment.

However, there is a cautionary tale in the Canopy/Mettrum deal that must be considered. The deal allows Mettrum to take unsolicited bids to purchase the firm from other parties until the closing date in early 2017. Canopy has the right to match these unsolicited offers. In the event that another bid for Mettrum materializes and Canopy does not match the new, larger offer, Mettrum must pay a $10 million break-up fee to Canopy.

In this weird, wild, wonderful Canadian cannabis equity market, anything can and will happen. Mettrum might find the temptation irresistible if a new player appears flashing cold, hard cash. If Canopy doesn’t rise to the occasion and outbid other potential players, it will lose credibility and market share. Volatility will ensue, upsetting Canopy’s price chart and leaving the stock vulnerable to short predators.

In any new investment play, it takes time for the markets to separate the wheat from the chaff. In the 1920s, it was radio firms that traded crazily until the market sorted them out. In the 80s, it was the personal computer companies. In the 90s, only a few entities survived the dot com boom unscathed. Today, in Canada, it is the cannabis market where a new “King of the Hill” contest is being waged.

Many times, the victors of these evolutionary economic skirmishes are the firms which were the first movers in their industry. Canopy is the standard-bearer in this campaign, and it has my bet that it will prevail.

The post Canopy Growth Corp.: When the Going Gets Weird, the Weird Turn Pro appeared first on The Motley Fool Canada.

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In the 80s, new Apple Inc. (NASDAQ:AAPL) CEO John Scully pushed Steve Jobs out as the company’s fortunes dwindled. By 1997, Jobs was back at a much smaller Apple where he and his team designed the next big things in technological history: the MacBook, iPad, and iPhone. Within 15 years, Apple was the world’s largest company. The comeback was breathtaking.

BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) hit its highest stock price of $241 per share in July 2007 when it was called Research in Motion. However, the company’s phone subscriptions numbers didn’t reach their peak of 85 million until September 2013, when its stock price was at $10–about where it languishes today.

How did that happen?

In Techland, only very new things sustain substantial profit margins. Fax machines, computers, and phones all become commoditized quickly. Competition arrives shortly after the new innovation, and profit margins get crushed, as does the stock.

In Techland, the early bird innovator catches the worm.

Imagine it is 2023, and you are cruising along the British Columbian coast in your brand new “robot-in-charge” GMC Cadillac. You are sitting in the passenger seat, pleasantly sipping a single malt scotch, which is legally possible if your vehicle is robot-controlled.

Suddenly, the wheel jerks left, the car careens off the cliff towards the ocean, and your last thoughts are, “My car has been hacked,” and “Why didn’t I buy the Ford Lincoln with its state-of-the-art BlackBerry QNX security software?”

When consumers get hacked today, they can lose credibility, confidentiality, and money, but they don’t lose their lives. But in our very near future, as more and more human jobs become automated, cyber security will become synonymous with safety.

Apple’s comeback required the company be pared to its core, while BlackBerry is dependent on cultivating the microkernel of its QNX operating system. QNX is a proven favourite in the worldwide automotive industry, guiding 3D navigation systems in 60 million vehicles from 250 different car manufacturers.

Apple facilitated its expansion through cash injections from moneyed partner Microsoft. BlackBerry has expanded its relationship to help its partner Ford populate public roads with a fleet of fully autonomous vehicles within five years’ time.

QNX is responsible for the seamless integration of navigation, radio, mobile phone, and media player applications in today’s Ford vehicles. BlackBerry has committed a team of engineers to Ford to innovate QNX Neutrino Operating System, Certicom security technology, QNX hypervisor, and QNX audio-processing software.

This partnership draws on BlackBerry’s history of developing invulnerable software for sensitive industries like transportation, medical, security, and defense. By focusing on its essential strength, BlackBerry will establish the cyber-security gold standard for occupied or network-dispatched vehicles in an ever-increasingly paranoid surveillance age.

The post Can BlackBerry Ltd. Make a Comeback like Apple Inc.? appeared first on The Motley Fool Canada.

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Baytex Energy Corp. (TSX:BTE)(NYSE:BTE) is mired in $1.9 billion of debt, its vaunted dividend vanished long ago, its stock price is a fraction of what it was in its heyday, and oil prices are low. Under these circumstances, most conventional energy companies would batten down the hatches, pay down the debt, and wait for oil market prices to normalize before being aggressive in its acquisitions.

But Baytex is no ordinary energy company. Like the Energizer Bunny, it keeps going and going, buying its way through the oil patch.

The company recently announced a $65 million acquisition in Peace River, Alberta, financed by a $100 million equity-bought deal at $5.25 per share. The Peace River acquisition comprises 3,000 BOE, plus another 3,000 BOE that are currently shut in for regulatory and economic reasons. The balance of the $100 million financing, $35 million, will be used to get the shut-in wells up and running when oil prices normalize in the next year or two.

In the disposition of the acquired energy assets, 85% of the energy assets are heavy oil. The contemplated production life of the reserves is about 16 years. When you do the math, Baytex is paying roughly $3 per barrel.

In February 2014, Baytex was paying a dividend of 22¢ per share, per month, the price of WTI oil was $98 a barrel, and Baytex stock was trading at $45. The company engineered a mammoth acquisition from Aurora Oil & Gas Limited in the Eagle Ford shale basin in Texas.

Altogether, the deal cost Baytex $2.6 billion dollars; $1.9 billion was paid in cash for the acquisition and $700 million was assumed in debt. The price per BOE in this transaction was $24.15 for proven reserves. Wisely, Baytex financed $1.3 billion of this acquisition cost in an equity-bought deal at about $45 per share.

Up market, down market, middle market: the Energizer Bunny keeps buying

Essentially, Baytex is employing a classic investment strategy: a dollar-cost averaging program in acquiring energy assets as it buys at varying in situ BOE prices over time. Buying low and selling high is the most straightforward method of profit-making. However, when a business is continuously selling its product, it only makes sense for the successful energy company to devise a counter-balancing strategy to continuously refuel its production and replenish its inventory.

What will the Baytex stock do? If the oil price goes down, Baytex’s stock will go down. If the oil price goes up, Baytex’s stock will go up. The question is, what will oil do? No one knows.

Every day energy companies deplete their energy reserves. The faster reserves are depleted, the better for profits. By necessity, Baytex must keep searching and buying–always moving forward to stay alive.

One thing is for sure. If the stock plunges to $1.50 or back to $45 per share, this company will just keep going and going.

The post Like the Energizer Bunny, Baytex Energy Corp. Just Keeps Going and Going appeared first on The Motley Fool Canada.

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TransAlta Renewables Inc. (TSX:RNW) is one of the largest clean energy providers in the world. It is the child that its parent company TransAlta Corporation (TSX:TA)(NYSE:TAC) spun out in 2013 at $10 dollars per share.

TA Corp. endowed its offspring with all the clean energy components from its energy portfolio: natural gas generators, wind farms, hydroelectric assets, and a natural gas pipeline.

TA Renewables has proved a prodigy since its inception, steadily eddying up its stock price to a $13.60. It has raised its annual dividend payment every year and currently sports a very generous 6.7% common share dividend.

TA Renewables has been awarded a higher market capitalization than its parent with a valuation of $3 billion. TA Corp. trades at $7 and change and pays a 2.22%, yet its market capitalization is only $2 billion, but TA Corp. owns 60% of TA Renewables’s common shares.

Huh? Do the math: 60% of $3 billion is $1.8 billion. So, TA Corp. is essentially trading just for the value of its stake in TA Renewables.

What does this mean?

This means that TA Renewables represents the future of the energy business. The 20% operating margins it enjoys on its modern, green energy products makes it the company and the stock of the future.

Its old-school energy firm parent company TA Corp., is not as economically viable as TA Renewables with a meagre 2.5% operating margin as it struggles selling “dirty” energy products.

It also means, funnily enough, that TA Corp. is achingly cheap. The market is not granting the energy company any value for its legacy energy assets other than for its humongous TA Renewables stake.

Don’t forget, TA Corp. is a 60% common shareholder in TA Renewables. Therefore, it will receive about $115 million from TA Renewables this year in dividend payments. Remember this company’s history is one of growing dividends every year since its inception.

So, when the child TA Renewables prospers, so does the parent TA Corp. In fact, TA Corp. will be subsidized until 2030 to the tune of $37 million dollars a year by the Alberta Government for the premature closure of its coal plants. Ironically, the future looks brighter and greener for this fossil fuel dinosaur.

It must be noted that in the event of a future takeover of TA Renewables, both TA Renewables’s and TA Corp.’s shares would enjoy a hefty premium.

I believe both companies are fantastic buys at these price levels. I would buy two-thirds of my purchase dollar amount in TA Renewables shares and place the rest of my money (the other 33% of my buy) on undervalued TA Corp. shares.

If one purchased the stocks in these fractions, the blended annual dividend the investor would receive would be about 5.3%.

The post Clean Energy, Strong Dividend: TransAlta Renewables Inc. Is a Lasting Legacy appeared first on The Motley Fool Canada.

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Canopy Growth Corp. (TSX:CGC) is a leader in a brand new business niche that is growing at an astronomical rate. Yet Canopy Growth is currently producing only minuscule profits in this niche. How can an investor handicap Canopy Growth’s future profits and anticipate the stock’s future price?

One way to figure out Canopy Growth’s future profits is to estimate how big its market will be five years from now. I believe that Canopy Growth may be a player in the recreational marijuana market when the drug gets legalized in Canada.

However, I don’t think the recreational market will be nearly as profitable. There will be far more competition in that market, because the dosage and purity requirements are not nearly as stringent as in the medical marijuana market.

Let’s focus only on the current medical marijuana market to forecast the future extent of Canopy Growth’s marijuana sales. How large will the medical market be in Canada five years from now? Canadian veterans give us a hint of potential future consumption in the general Canadian population. Statistics from the Canadian Department of Veterans Affairs for 2015-2016 indicate that 22% of all reimbursements to veterans for medical drugs was for cannabinoid products.

Canopy Growth’s fair-weather profits forecast

According to the Canadian Government’s numbers, the amount spent on cannabis products averaged $1,902 per veteran per year. Let’s be conservative and assume that the consumption rate of the general Canadian public will be less than half of the veterans’ medical marijuana participation rate. This assumption establishes the public participation rate at 10% in 2022. If the general public’s per-person, per-annum expenditure mirrors the veterans’ numbers at $1,902, the annual cross-Canada market value for medical marijuana would be over $6 billion.

If all is fair-weather sailing in the next five years, Canopy Growth could take a 25% share of the Canadian medical marijuana market. If its net margin is 40% on gross annual sales projected at $1.5 billion, then Canopy Growth’s profit would be about $600 million, or $4.28 per share. This figure assumes that the outstanding number of Canopy Growth’s common shares rises from the current 115 million to 140 million shares through the equity financing it will need to fund capital expenditures for expansion.

The above scenario excludes consideration for sales to the Americas, the U.S. and Europe, new product innovations that may appeal to a broader and higher-scale market, and sales of products appealing to the legal recreational marijuana market, which will appear in a year or two.

This back-of-the-napkin figuring is a simple exercise, but it offers a general idea of the magnitude of Canopy Growth’s potential profits. If Canopy Growth earns $4 per share in five years, then the stock price could be anywhere from $40 to $120 per share depending on the multiples the market will award leading cannabis stocks at that time.

So what’s today’s forecast for the height of Canopy’s Growth? Rocky Mountain high!

The post How High Can Canopy Growth Corp. Grow? appeared first on The Motley Fool Canada.

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When a new stock like Canopy Growth is traded on future values in a new industry, it is difficult for the market to decide its proper valuation because there are no accepted standards of measure. In 1997 Amazon.com, Inc. (NASDAQ:AMZN) IPO’d at $18 per share and surged during the dot com boom before trading as low as $8 by 2002. Facebook debuted at $42 in May 2012 before trading down to less than $18 per share by September of that year.

The reason these “super stocks” traded with so much volatility is twofold: (1) no one fully understood the economic model that these businesses were using in a new industry; and (2) short sellers and “big money” faded the stock price, so they could scare out nervous speculators, make money on their short position, while simultaneously engineering their own low entry price into the equity.

These same dynamics seem to be at work in Canopy Growth’s case.

Marijuana and its derivative cannabinoid products have been known, anecdotally, to have medicinal powers. However, until quite recently, the medicinal effects have not been examined scientifically. That fact has changed; currently, millions of people use marijuana for what ails them. Evidently there is a business to be modeled, but the science to back it is still in development.

However, big pharma and other skeptics still abound. Unsurprisingly, major competitors and naysayers are the natural cheerleaders of any short-selling campaign, as are many profit-seeking day traders.

Short sellers always fade stocks where the fundamentals are outpaced by the company’s high valuation. Canopy Growth makes no profit at this point, which gives the shorties plenty of ammunition to buttress their argument. Amazon never made any real profits for almost 20 years, while they spent their capital building their physical infrastructure. In the long run, this lack of profits didn’t harm Amazon’s equity price as patient investors began to understand the Amazon business model.

I would buy Canopy Growth at $7, $6, or even $4, if the stock ever got that low again.

Canopy Growth is a leader in a new industry that is growing. I can’t imagine that, in today’s debt-strangled world, how cannabis as a medical product can fail. A new drug that is organic, effective for many health ailments, and costs significantly less than its competitors can’t be stopped or even slowed by governments, regulators, or big pharma.

I can foresee a 50/50 chance that Canopy Growth will be taken over by a mainstream big pharma corporation within five years. I strongly believe that the take-out price would be well north of $7 per share.

The post Why I’d Buy Canopy Growth Corp. at $7 appeared first on The Motley Fool Canada.

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Canopy Growth Corp.’s (TSX:CGC) management has heralded to popular demand for the new natural miracle drug: cannabis. Canopy Growth’s product consistently meets the stringent specifications of the medical community because it has drafted a superb technical team capable of cultivating marijuana that reliably delivers the required potency.

How hard can it be to grow marijuana? After all, it’s just a weed. But cannabis isn’t just any garden variety wild flower to medical professionals, who must be certain of the potency of their prescriptions. According to its website, Canopy Growth owns exclusive licensing rights to supply Canada with Bedrocan whole bud medical–grade cannabis  “pioneered … in Holland through decades of selection and refinement.”

Many growers have 70-100% of their crops rejected by medical distributors because their strains are not standardized. These “bad crops” are supposed to be “disposed of” by the growers by burning the rejected weed. Let’s be honest … in reality, a lot of that stuff is probably finding its way out the back door for recreational use.

That type of distribution is  illegal, and, eventually, Canopy Growth will absorb the market share of those growers who can’t harvest strains that meet medical specifications. Bedrocan strains are so consistent they are relied on for clinical research in seven European countries as well as by the EQUAL Study in Canada.

Canopy Growth has 500,000 square feet of indoor and greenhouse capacity, in which specialist growers cultivate genetically superlative cannabis strains. The production costs of growing standardized plants according to proper technical specifications are much less than those associated with patented synthetic pharmaceuticals.

The consumer can enjoy the lower prices of cannibanoid medicines along with greater relief from what ails them and fewer side effects. All the while, a first-class producer like Canopy Growth will be enjoying wide profit margins in an ever-growing market.

How large could the available market for Canopy Growth’s products be in the long term? Canadian veterans are interesting indicators, since they use marijuana and cannibanoid medicines more than any other drug that is prescribed to them. Of all the drugs provided to our Canadian veterans, 22% are cannabis drugs. It is reasonable to imagine an exponential market growth if the general population consumed even half that percentage 10 years from now.

Leaders in the cannabis industry won’t be able to escape spending serious money on scientific research any more than the  pharmaceutical companies do with their patented drugs on research. Canopy Growth has hedged against such expenditures by purchasing the exclusive licensing rights to the American continents of both the existing and future gene pools of Bedrocan. This hedge will offset necessary future expenditures as GDC will need to maintain state-of-the-art equipment to expand capacity as well as to entice and retain the most highly specialized growers in this growing market..

Canopy Growth Corp. is a centerpiece in today’s nascent,  idyllic cannabis market because it has the management and the knowledge necessary to remain in the vanguard of Canadian cannabis producers.

The post Canopy Growth Corp. Is a Cannabis Pastoral appeared first on The Motley Fool Canada.

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How can the well-balanced, savvy equity investor best leverage their investment in gold? Should they buy bullion, a gold ETF, or gold equities? Or is the answer to hedge against the market by investing in a high-volume, low-margin gold producer, knowing full well that potential high reward brings with it potential high risk?

Paradoxically, their equilibrium might be better maintained with the sound sleep they enjoy, secure in the knowledge that when everything else goes down the proverbial toilet, their gold stock should soar.

Detour Gold Corporation (TSX:DGC) is a low-grade gold producer with 32 million ounces of gold reserves at $1,000 per ounce. Detour Gold has a mine life of about 60 years at its current annual production level of 525,000 ounces. Further, Detour Gold has plenty of potential gold exploration opportunities in the area to expand low-cost open pit mining operations.

The present gold cut-off grade of 0.75 grams per tonne will be lowered if the price of gold appreciates, leading to more annual production, more reserves, a longer mine life, and, of course, more profits.

Detour Gold has an excellent cost basis in its revolving credit: $135 mllion at a rate of 1.75-2.75%. Detour Gold is located in the stable mining jurisdiction of northern Ontario. Therefore, it covers many of its costs in Canadian dollars, giving Detour Gold a competitive advantage over its American counterparts.

One drawback to Detour Gold is its exposure to Ontario electricity costs, which are higher than in any other North American jurisdiction.

Miners use plenty of electricity. Hydro One is currently planning to renovate the Darlington nuclear plant for an estimated cost between $12-15 billion dollars. It would be surprising if that amount doesn’t double or even triple as it did during a similar project at the Bruce nuclear plant in the 90s.  If this occurs, Ontario rates will increase even more than they are now anticipating. Currently, Ontario electricity prices are double what they are in Quebec.

If the general economy accelerates and GDP aligns with the 4-5% growth in the United States as Trump administration predicts, gold prices will most likely deteriorate, and the equity price of a low-grade, high-volume company like Detour Gold would undoubtedly crater.

On the other hand, your gold hedge would only represent 5% or less of your portfolio, so a sharp decline in Detour Gold would probably be equalized or outstripped by the bulk of your equity portfolio. However, the gross-indebtedness of both the private and public sectors in the Western world will probably sustain sluggishness or worse in these economies such that quantitative easing will be too tempting to resist.

In this climate, based on $32 per share relative to $1,100-1,200 per gold ounce, with $1,500 gold or higher, Detour Gold could climb well over $100 per share, with  a +100-year mine life even with gold production increasing annually.

Detour Gold Corporation could be your golden hedge.

The post A Golden Hedge Is the Great Equalizer appeared first on The Motley Fool Canada.

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