Dividends From the Great White North

 | Oct 16, 2013 | 10:00 AM EDT
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As the power struggle reaches a crescendo in the United States, most of us observers are both fascinated and frustrated. When I get burned out from following the machinations, and need safe and sane investment ideas, I follow the immortal words of Bob and Doug McKenzie.

Take off! To the Great White North!

Take off! It's a beauty way go!

While the Americans reintroduce "country risk" into our formerly "risk-free" asset class, our saner cousins to the north continue to run a stable and attractive country. Although Canadian stocks would not be immune from a market crash in the U.S. certainly they have diversification value for U.S. investors, while being easily understandable and investable due to common language, accounting practices and culture.

In the dividend rotation strategy upon which I expound regularly, Canadian banks are among my favorite income sources. Every quarter I rotate through several names that pay attractive -- but not outrageously high -- dividends, yet offer the safety of a solid financial industry and satisfactory trading patterns. Notably, the U.S' financial sector is far more risky for playing dividends now, due to softening earnings profiles, as shown by JP Morgan's (JPM) recent results.

At the moment I am playing two Canadian banks for upcoming dividends. Royal Bank of Canada (RY) will pay 0.97% (or $0.64 per share) on October 22. Fast on its heels, Bank of Montreal (BMO) will pay 1.04% ($0.70 per share) on October 30.

Both names are large, diversified financial institutions. Although they are subject to some net interest margin compression due to low rates around the globe, they also benefit from lower provisioning and strong capital bases. Both names have the cash flow to increase dividends in the future, although BMO has refrained from dividend increases for the past two quarters.

Beyond these two immediate opportunities, put on your list Bank of Nova Scotia (BNS), Toronto-Dominion (TD), and Canadian Imperial Bank of Commerce (CM). These names all represent solid institutions that can offer a steady rotation through attractive dividend payouts.

There is a note of caution. U.S. investors will have 20% or more of the dividend payments deducted for foreign withholding taxes. The yields are still attractive after-tax, but obviously will not be as juicy as the pre-tax amounts look.

Beauty, eh?



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