Sunday, August 23, 2009

Today’s Best Risk/Reward Income Investments Part 1: Canadian Power Stocks


Stocks for the fear AND greed in all of us.

The Problem: Conflicted by Fear and Greed

In the current market, many income investors are feeling very conflicted.

· They are afraid of buying into an overextended rally

· They are also afraid of missing further gains and dividend yields while sitting in cash

A Solution: Selected Canadian Electric Power Stocks for Steady, High Returns

As my regular readers know, I am not a believer in the current rally, yet I hear the pain of conservative income investors who seek yields that are not only safe, but high.

Why Buy These Canadian Power Stocks?

If you must go long, these Canadian Electric Power stocks are all weather stocks that you can feel safe buying even in this volatile market.

· Safety: They sport some of the safest, most reliable dividends to be found, backed by steady revenue streams and sustainable payout ratios. While they can and do suffer

· High yields that keep you ahead of taxes and inflation

· Payment in Canadian dollars, providing a critical element of diversification out of the “Obamanable shrinking US dollar” for those with heavy USD exposure

· Most are relatively green power producers that will benefit from government incentives

Thus when/if the markets pull back, you can afford to sit with these because they pay you very well while you hold them.

Why NOT to Buy Them

They are relatively low risk, but not without risk. Primary risks include

· Overall market risk: Like most stocks, these will fall if the overall stock market pulls back, and there are plenty of reasons to suggest that it will. High valuations compared to earnings, a still deeply weakened US and world economy, continuing job losses that threaten whatever fragile recovery there is, a banking system still on life support, etc.

· Low liquidity: These are thinly traded, and thus tend to drop harder than the overall market.

· Currency Risk: If global markets retreat, the CAD tends to fall against the safe-haven currencies: the JPY, USD, and CHF. Thus those seeking diversification out of the USD would suffer additional losses in currency value in the event of another major stock market decline.

These risks are real. That said, however, we believe the CAD will appreciate further over the long term against the USD. Canada’s banking system largely avoided the subprime mess, sparing Canada the need to expand their money supply (which devalues the currency) on anything like the scale of the US. Also, Canada is the West’s largest source of energy, and supplies other key commodities.

The selections below are not ranked in order of preference. All make excellent investments that will pay you well in all but the most dire conditions, and have continued to pay (and in some cases raise) dividends throughout the current crisis, proving their reliability.

ScreenHunter_09 Aug. 23 18.45


In the coming installments of this series, we will present additional ideas for uniquely safe, high yields. Because global markets are highly interrelated at this time, we invite readers to follow our daily and weekly global markets analyses at Give these a few minutes a day, and get a handle on how your investments are being affected by commodity and forex markets.

Disclosure and Disclaimer: The views herein expressed are not necessarily those of AVAFX. The author may have positions in the above mentioned instruments.

1 comment:

  1. What about the risk from very bad weather? Bad winter is predicted, a major northeast ice story could sink profits.