In spite of many investors searching for hot stocks, the reality is that a bottom-up approach may not always be the best way to go about it. In reverse, the top-down approach starts with understanding the general economy, then the sector, and finally the individual security that one wants to invest in.

As a great investor once said, “a rising tide lifts all boats,” which translates to an improving economy being good for all sectors. Unfortunately, the current state of the economy (which many think is doing extremely well) is not indicative of better economic times in the future. In fact, record-low unemployment is a leading indicator for a downturn in the economy.

There are a number of factors confirming that we are at the tail end of an economic cycle, so investors may be best suited to take refuge in a few defensive names and enjoy collecting dividends along the way. To begin with, Canada’s biggest bank by market capitalization, Royal Bank (TSX:RY)(NYSE:RY), just increased the dividend to offer a yield of almost 3.8%. In addition to this, the well-diversified business lines will offer downside protection in the event of an economic downturn.

For investors looking beyond the financial sector, shares of Canadian Pacific Railway (TSX:CP)(NYSE:CP) are in a unique position to continue turning out profits and buying back shares throughout all phases of the economic cycle. At a current price of $265 per share, investors have been well rewarded over the past year. With momentum on their side, this name has a lot to offer investors who are seeking safety. After all, this is one of the most defensive businesses around.

The last name on the list is none other than Cineplex (TSX:CGX), which recently reported earnings that led shares higher. As history has shown on many occasions, difficult economic times have led many to skip the dinner part of the “dinner-and-a-movie” date, opting instead for the movie only. At a current price of almost $33 per share, the dividend yield is a comfortable 5.3%, which is expected to be sustained for a long time to come.

As opportunity sometimes presents itself during difficult periods, this may be the chance for the theatre industry to reinvent itself once again, this time figuring out how to keep people in the building for a longer period of time and potentially receiving a greater amount of their disposable income. Time will tell if we one day we see a bar in each movie theatre.

As the bull market continues to age every day, investors need to remain very cautious. In spite of many promises from our politicians, the reality is the raising of interest rates will bring on the inevitable: a major pullback!

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On Friday of last week, shares of Pure Multi-Family REIT LP (TSXV:RUF.UN) declined by close to 10% after the company announced that it would end the efforts to be bought by a larger suitor. Essentially, investors seeking an arbitrage opportunity are no longer willing to stay the course, as the expected” buyout” was not going to materialize.

The new lower price per share is an incredibly attractive opportunity for those sitting on the sidelines willing to invest in very high-quality assets managed by a team with a winning record. As a reminder, the team that started this operation was very similar to the team at Pure Industrial Real Estate Trust, which was recently acquired by Blackstone. Clearly, the “smart” money stays close together.

As this name is expected to trade for a long time yet, investors must understand what they are getting for their money. As the monthly dividend is paid is U.S. dollars, the yield is no less than 5.3% at the current price of $8.50 per share. In addition, investors buying at these levels will receive an equal amount of tangible book value for each dollar that they put up. Essentially, shares are trading at their current liquidation value!

As the firm continues to come into its own and properties become fully rented (throughout the entire year), the payout ratio is beginning to stabilize, and the opportunity to reach a greater market is starting to become very true. At a current market capitalization of $675 million, the company can now focus on next steps, as it will need to stand on its own. Currently listed on the venture exchange, the graduation to the Toronto Stock Exchange will bring about many new potential investors.

In spite of no longer actively seeking a buyer, the company can still be a very profitable investment for many years to come — not only as an individual security, but also as part of the REIT sector. As interest rates have increased on several occasions, many investors are starting to shy away from this sector as it is mainly driven by income. To boot, the difference between a 5% yield and the risk-free rate of return has declined, as the risk-free rate has increased. To offset this, many REITs have seen declines in the share prices.

As is always the case, investors overweight the most recent news and don’t pay enough attention to future expectations. After seeing interest rates increase on several occasions, the federal reserve (both in Canada and the United States) will not be able to go much further without sending the country in bankruptcy. As a reminder, corporations are not the only ones in debt. Governments have also borrowed a lot of money!

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For many investors looking forward to the next phase of their lives, the most important decision may very well be the next one. Depending on the situation, the investments made today could either lead to a much more prosperous retirement that includes a little more travel, or if bad decisions are made, much less fun and much less travel.

Given the challenging market conditions, the expression “a bird in the hand is worth two in the bush” has never been more true. For those seeking a high probability of success, here are the best names available.

At the very top of the list is none other than Restaurant Brands International Inc. (TSX:QSR)(NYSE:QSR), which at a current price of $78 is offering investors a dividend yield of no less than 3% as the company continues to expand its footprint across the country. In spite of the very well known Tim Hortons’ franchise reaching a point of saturation, the growth potential remains plentiful. After acquiring Popeyes Chicken, the bright orange signs have become much more prevalent in many neighbourhoods. Over the next five years, investors will not only benefit from the dividend payments, but also from the capital appreciation that will go alongside the bright orange sign.

The second name on the list is Enbridge Inc. (TSX:ENB)(NYSE:ENB), which after trading sideways for close to two years is finally ready for another major move upwards. As shares have now rallied to more than $47 each, the dividend yield remains a fairly attractive 5.7%, which is expected to increase again over the next year. In fact, this is one of the only companies that has made available on their website a clear road map as to where the dividend payments are going (and when). Increases are to be expected.

In addition to the dividend, the main factor that is so attractive is the unique service provided by the company. Michael Porter may have another fantastic real-life example with Enbridge!

The next name for investors to consider is none other than Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM), which at a current price of $122 per share will reward investors with a dividend payment that is highly likely to increase substantially over the next five years. After issuing additional shares to complete a U.S. wealth management acquisition, the bank has resumed its share buyback and is once again reducing the number of shares outstanding. As corporate profits continue to increase (and are spread over fewer shares), investors will be the one to reap the rewards in the form of higher dividends!

The last name on the list is none other than Algonquin Power & Utilities Corp. (TSX:AQN)(NYSE:AQN), which is very well positioned to benefit from the increase in demand of electricity. In addition to homes needing power, the increase in electric vehicles has been a huge boom in this sector. For investors willing to remain patient, the dividend yield will only be the beginning!

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For investors seeking exposure to this industry without taking an inordinate amount of risk, shares of Inter Pipeline Ltd. (TSX:IPL) are the most obvious choice. As the price of oil increases, the production in the Province of Alberta will be some of the first to come back online, which will increase revenues for this pipeline company. As this happens, the dividend yield of 6.75% will be only a small portion of the total return. As a reminder, shares traded in excess of $35 during the boom times. At a price under $25 investors are receiving an incredible bargain!

In order to hedge the risk of investing in this very volatile sector, investors (especially the retirees) will want to add shares of power companies, which are starting to take market share away from the oil producers. When we consider the amount of money that consumers have traditionally spent on the running of their vehicles, the large part of the fuel costs have gone to the purchase of oil. As more and more electric vehicles come online, the large share of wallet taken up by the consumption of oil is slowly moving to energy producers. It may be a good idea to balance out the portfolio!

In Canada, one of the companies that has underperformed for awhile and is starting to pick up steam is none other than TransAlta Corporation (TSX:TA)(NYSE:TAC), which currently trades at a price of $7.60 per share. In spite of a large number of high quality assets, the dividend yield is no more than 2.1%, which may be the reason why investors have shunned this name for so long. The good news is for patient investors is that the tipping point be not be far away.

As the company has continued to retain a large part of its free cash, the tangible book value continues to increase and make each share more valuable. In fact, at the current time shares trade at a 40% discount to tangible book value – an incredible deal!

In spite of many investors not wanting to take a large amount of risk, the truth is that it is perfectly acceptable to add certain names into a well- diversified portfolio in order to attain a much higher return.

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Albeit the excitement is often lacking, there are many names currently available at excellent valuations that each of these groups will be more than happy to dive into head first. Again, the commonality is a holding period that is in almost all cases more than five years.

The first name on the list is none other than Dollarama Inc. (TSX:DOL), which in spite of trading at more than 30 times earnings and paying a dividend of no more than 0.5% offers huge upside potential. As the secular shift from bricks and mortar to online continues to pick up speed, the company is in a unique position to capitalize on the gap created for the small ticket items.

As the company continues to open additional stores and reaches a point of maturity, the dividend increases will inevitably follow the lower price to earnings ratio, which will bring out a whole new type of investor. For those willing to take a small amount of risk, the reward may be well worth getting in early.

The next name to consider is none other than Canadian National Railway (TSX:CNR)(NYSE:CNI), which at a current price of $115 per share offers a dividend yield that is roughly in line with the risk-free rate of return. In spite of carrying the same risks of any other security, this railway remains the largest in Canada (by market capitalization) and holds a unique footprint from coast to coast. As profitability continues to increase (alongside the share buyback), investors of all ages will be able to prosper by remaining patient with this name.

South of the border, shares of Starbucks Corporation (NASDAQ:SBUX) may have finally turned the corner into bargain territory, as the company has started to close U.S. stores that are not performing up to par. As international growth continues to raise the bottom line however, there may be a disconnect between the expectations of investors and the reality of performance – – and this time it will be in our favour!

At a current price of US$53, the dividend yield is slightly less than 2.75% and has the opportunity to move substantially higher. As many countries that traditionally enjoyed tea beverages are beginning to enjoy the benefits offered by coffee, the upside potential from this name still has a long way to go.

With so many fantastic opportunities available to investors, the main point that must be considered is whether a mix of income and growth is most important – –  or a focus on one of the two.

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As interest rates rise again and again and unemployment reaches another “new low,” the stock market has become much more vulnerable than most want to admit. For those who study leading economic indicators, however, the situation could not be more clear: certain stocks and sectors are in for a major pullback.

At the top of the list is none other than Air Canada (TSX:AC)(TSX:AC.B). Airlines are traditionally some of the worst businesses to invest in. As discretionary income decreases (due to higher oil prices and interest rates), many people will have no other choice but to cut vacations they may be planning. To boot, the airlines will have to incur higher-than-usual costs to fly planes from one location to another. Higher oil prices impact everyone!

The second name is, again, in the travel industry. As the cost to move a cruise ship escalates alongside the price of oil, shares of Carnival (NYSE:CCL) have seen very little revenue growth over the past few years. In spite of a bottom line that is getting better and better, the momentum will be difficult to maintain. Once the motion comes to a stop, there will be very little reason for investors to continue holding shares of this name.

Back in Canada, companies such as Canadian Western Bank (TSX:CWB) may need to hit the pause button after shares increased by close to 50% over the past year. In spite of higher oil prices, the risk/reward ratio may no longer make sense for this name. As is always the case, investors need to ask what they are giving vs. what they are getting. At a price of more than $38 per share, profitability will need to increase drastically in order to receive any capital appreciation for buyers entering a new position today.

The final name on the list is Bausch Health Companies (TSX:BHC)(NYSE:BHC), formerly Valeant Pharmaceuticals, which remains under a mountain of debt with many drugs going off patent. In spite of a lot of “potential” in the new products that the company is either launching or re-launching, the reality remains bleak for a name such as this.

Although there may be some excellent products offered by this drug manufacturer, the reality is that the increase in interest rates (and the higher risk profile of the company) have made borrowing a much costlier endeavour, which is an added headwind to the company.

In spite of many long opportunities in the market, investors seeking to make a profit from both owning and shorting stock have even more tools at their disposal. As the economy becomes more vulnerable, it may be a best practice to hedge a few holdings.

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As the increases in interest rates are expected to continue until at least the end of the year, investors may think that they have very little reason to rush into the REIT sector. The sector has, however, offered returns that have far outpaced the general market over the past decade. As such, it may be a good idea to reconsider this sector.

After moving sideways (and, in many cases, selling off), many REITs currently offer dividend yields that are far above the risk-free rate of return and sell for a share price that is very close to tangible book value. In certain cases, they are even at a discount to tangible book value. The caveat for investors is that these investments may take a long period of time to work out very profitably, as increasing interest rates will put downward pressure on share prices and asset values.

Case in point: Dream Office Real Estate Investment Trst (TSX:D.UN), which needed several years to rebound after paying a dividend that was simply too generous to be sustained. At a current price of $25 per share, investors are receiving assets that are close to that very amount. On top of that, the dividend provides a yield of no less than 4%, which could increase fairly shortly as the properties owned in western Canada could be rented once again. As a reminder, the decline in the price of oil has drastically impacted the demand for office space in both Calgary and Edmonton.

For investors seeking something that trades at a larger discount to tangible book value, shares of Slate Office REIT (TSX:SOT.UN) may be the best name available. In addition to buying assets at less than 100 cents on the dollar, investors will receive a dividend yield of no less than 9.3% and benefit from a share buyback in the process. Although it rarely happens for the best, a dividend cut for this REIT could yield a substantial benefit to investors, as the free cash available could be used to re-purchase additional shares.

The third name on the list is none other than Pure Multi-Family REIT LP (TSXV:RUF.UN), which, after receiving a takeover offer, saw shares jump to more than $9. At this level, investors will receive generous dividend payments of approximately 5.25% as the dividend is paid in U.S. dollars. Combined with this generous yield, investors have the potential to achieve a short-term capital gain should shares be pushed higher by any other suitor wishing to acquire high-quality assets.

As a reminder, the same group that started Pure Industrial Real Estate Investment Trust is the group behind Pure Multi-Family REIT. Sometimes winners stick together, and investors need to follow the winners!

With a number of high-quality names to choose from, increasing interest rates have offered investors a number of excellent opportunities to make large gains. All we have to do is accept them.

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The first thing to consider is what the world will look like in 10 years and which companies will be essential to run the economy. After that, the next important step we can take is overlaying Porter’s five forces in an effort to figure out what industry (or company) will be the most profitable. Certain choices will surprise no one.

The first name on the list is none other than Canadian National Railway (TSX:CNR)(NYSE:CNI), which has a unique footprint to move goods across the country. As the lowest-cost method to transport goods, it will be difficult for any competitor to match this operation in a cost-effective way. Instead of trying to time the market, this name can be purchased at any moment and held for at least a decade!

The second name on the list is Royal Bank of Canada (TSX:RY)(NYSE:RY), which is the largest Canadian bank. In what has traditionally been a very lucrative sector, banking will, without a doubt, be an essential part of the world in a decade from now. In addition to the current 3.6% dividend yield, investors can expect a substantial amount of upside from this name, as the barriers to entry (and expansion) remain very high in the current “compliance” climate.

South of the border, U.S. juggernaut Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), formerly Google, remains a top pick, as the technology side of things is still evolving. In spite of not paying a dividend, the company is extremely interesting, as it continues to bring about major shifts in the marketplace. In fact, it is due to this name that insurance companies have been excluded from this list. Although many insurance segments will remain profitable, the introduction of the self-driving car will, without a doubt, have a ripple effect throughout the industry. As this is only one of the things Alphabet is doing, it remains a company that all investors should consider as a long-term hold.

The last holding on the list is HORIZNS MARIJUNA LF CL A UNT ETF (TSX:HMMJ), which, at the current time, is the highest-risk name of the bunch. As a proxy for the marijuana industry as a whole, there is inevitably going to be many failures matched by a number of incredible successes. Barring the accuracy of one’s crystal ball, this may be the best place for investors to put their money to receive a suitable return from the industry. Time will tell!

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For the coffee shop investor, dollar cost averaging is without a doubt the way to go. On a regular basis, money is saved and invested in high quality (mostly blue-chip companies) with proven track records of performance and dividend payments. In many cases, the dividend payments increase alongside the share prices, which makes these boring investments extremely profitable. For investors seeking much more exciting opportunities, however, this approach may not be the one that is most often practiced. Case in point: Warren Buffett.

As the world’s greatest investor is well known for taking large positions in companies with durable competitive advantages and remaining patient, investors don’t always have to wait very long to follow the Oracle of Omaha into another profitable trade. In fact, one of his recent investments in Home Capital Group Inc. (TSX:HCG) is taking a little longer to come to fruition than expected.

During the past week, the company reported earnings per share that missed estimates by a penny and led investors to sell out of their holdings, as many now believe that the company has hit a plateau regarding profitability. The opportunity this presents to investors is that shares have retreated to a price of less than $15 in spite of carrying tangible book value of almost $23 per share. Investors prepared to take this risk will receive no dividend payments or cash incentives until they sell out of their shares later on. The question they need to ask themselves in this case: why not dollar-cost-average into the position?

In spite of this being a good approach for many defensive stocks, shares of Home Capital Group are at higher risk and therefore could move substantially higher on very short notice. After reporting earnings of $0.80 over the first two quarters of the year, which leads to a price to earnings ratio of less than nine times (annualized), the value in this name could be realized very quickly. For investors who purchase 300 shares today (at a cost of $4,300), the benefit of ignoring dollar-cost-averaging will be that shares will not need to be purchased at a later time at a higher price. Sometimes when investors buy in multiple increments, the price tag (of $4,300 in this case) increases to a much higher amount.

As is the case for everyday investors (and folks like Warren Buffett), we all want the gains to accrue in our own investment accounts instead of buying at a higher price. For the fantastic opportunities available, “all in” is sometimes the way to go.

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In spite of being a bull on shares of North West Company (TSX:NWC) for a number of years, the time may have come to re-evaluate the situation in the hopes of missing out on a secular shift. As many have learned the hard way, the internet and “home delivery” have permanently altered the retail landscape and, along the way, destroyed a lot of shareholder value. As investors, this is what we want to avoid — a destruction of shareholder wealth.

In the case of North West Company, the company has been spared in large part because of its unique footprint and numerous locations in remote areas. The challenge that the company and investors now face is that dividend increases are beginning to stretch the balance sheet more and more, which — as interest rates increase slowly but surely — will make it more difficult for the company to increase leverage. To boot, the higher-than-average dividend yield will need to be even higher (in comparison to the risk-free rate of return) to be seen as “attractive” by investors.

At a current price of almost $30 per share, the dividend yield is close to 4.3%, and yet investors have very little to look forward to. There are very few areas of organic growth remaining, and with the increase in areas where Amazon.com is willing to ship to, the major risk is that certain markets that are dominated by North West Company will become extremely competitive. Along the way, margins will be cut, and profitability will be reduced for this old-style bricks-and-mortar retailer.

With so many headwinds being faced by North West Company, investors seeking a defensive business may be best suited to take a better look at shares of Intertape Polymer Group (TSX:ITP), which is in the business of manufacturing adhesive (tape) for everyday use. At a current price of $18.50, the dividend yield is a generous 4%, and the company still has internal opportunities to increase the bottom line. Currently, the manufacturing facilities are under review, and the company is making improvements to produce various products at a lower cost.

To make this name more interesting, a substantial amount of the revenues is in U.S. dollars, which, given the lower Canadian currency, has led to an increase. In spite of this headwind, investors can rest assured, as this is largely priced in to the current share price. In spite of online retailing, the manufacturing of tape remains essential, as consumers will need the product at various times — but never more than when they are moving!

Regardless of where the product is bought, the reality is that this company will be around for a long time to come (and may even be a buyout target for a larger conglomerate). Time will tell, and until then, let’s enjoy the dividends!

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