By Gordon Pape | Sat Jan 07 2012
Article from Money Ville
“There’s nothing to invest in any more,” a friend moaned as we shared a drink over the holidays.
That’s not literally true, of course — there are thousands of investment options out there. Just none that suited him.
GICs? The big banks will only give you 1.85 per cent and for that you have to lock in for five years. With inflation running at 2.9 per cent, that’s like giving away money.
Bonds? Not much better. Ten-year Government of Canada bonds yield only about 2 per cent.
Stocks? Too scary, at least for my friend. His sleep patterns don’t respond well to triple-digit gains one day followed by even steeper losses the next.
Mutual funds? “Haven’t made a penny on them in 10 years.”
He loved income trusts but thanks to Finance Minister Jim Flaherty and a broken election promise, they’ve pretty well been wiped out.
“Guess I’ll just keep it in a money fund,” he said.
That’s the worst plan of all. The average money market fund returned less than half a per cent last year. I told him so.
“Well, have you got any bright ideas?” he responded, somewhat testily.
Actually, yes — that’s what I do. But first I had to remind him of one basic truth about money: Nothing is completely safe. There is a degree of risk in everything you do — even if you bury the cash in the back yard (inflation will eat it if the mice don’t mulch it for nests). It’s a matter of understanding the degree of risk you are taking and deciding if it is acceptable. Here are two of the suggestions I gave him.
National Bank Mortgage Fund. Believe it or not, there are a few mutual funds out there that have never lost money over a 12-month period. This is one of those rarities. Since it was launched more than 20 years ago, the worst number it has ever posted was a 0.51 per cent gain in the year ending Jan. 30, 1995. If you’re looking for low risk, here it is.
You won’t get rich, however. That’s the price of safety. But you’ll earn a better return than you’ll get from a money market fund or a big bank GIC. The fund gained 3.45 per cent in the year ending Jan. 3 and the five-year average annual compound rate of return was almost the same at 3.35 per cent. If you’re content with that, this fund is for you.
Despite the name, this is not strictly a mortgage fund — it’s more of a short-term bond fund with some mortgages added. As of Nov. 30, 33.2 per cent of the assets was in mortgage-backed securities, 30.7 per cent was in corporate debentures, 23.5 per cent was invested in provincial government bonds, 9.4 per cent was in federal bonds, and 3.3 per cent of the fund was in cash.
There is also some modest cash flow. Distributions are paid monthly and totalled about $0.21 a unit for the 12 months to Dec. 23. The minimum initial investment is $500 and there are no sales commissions.
What you’ll get here is safety plus a respectable return. That’s all many people want in times such as these.
Enbridge Inc. I know, my friend doesn’t trust the stock market. But there are stocks and there are super stocks. Enbridge falls into the latter category.
Based in Calgary, Enbridge is a multi-faceted operation. It is best-known for its huge pipeline business which is the world’s longest crude oil and liquids transportation system. But it also is Canada’s largest natural gas distributor, serving Ontario, Quebec, New Brunswick, and New York state. As well, Enbridge is increasingly involved in the natural gas transmission and midstream businesses, and is expanding its activities in renewable and green energy technologies including wind and solar energy, hybrid fuel cells, and carbon dioxide sequestration.
The company has about 6,000 employees in Canada and the U.S. and has been recognized as one of the Global 100 Most Sustainable Corporations in the World.
Enbridge has all the attributes I look for in a superior stock, including the following:
Dividends. The company has an excellent dividend history. It has paid dividends for more than 58 years, with an average increase of 10 per cent annually over that time. The company has increased its payout every year since 1995 and recently announced a 15 per cent increase for 2012 to $0.2825 per quarter. The projected 2012 yield at the time of writing was 3 per cent.
Growth. Steadily increasing dividends, revenue, and profits translate into long-term share price appreciation. Since we first recommended Enbridge in my Internet Wealth Builder newsletter in 1999, the share price has increased by 375 per cent! The dividends received over those years are a bonus.
Treatment of shareholders. One of the company’s top priorities is delivering value to shareholders and it has proven repeatedly that this isn’t an empty promise through dividend hikes, share splits, and a good dividend reinvestment plan that offers a 2 per cent discount on the stock.
But it’s a stock, so what about risk? Yes, there is some. Pipeline breaks are the most visible risk because they tend to attract widespread media coverage, especially during these environmentally conscious times.
Economic risk is more serious. Another recession would hurt revenue to some extent. However, because of the nature of its business, Enbridge tends to be more recession-resistant than many other companies. That was proved during the market meltdown of 2008-09 when, unlike most other stocks, Enbridge shares did not display extreme volatility. In fact, they recorded only a modest decline during that period, nothing near as severe as the overall loss on the TSX. So while the National Bank fund may be safer, you’ll earn a lot more money here if you can live with a little more risk.
The shares trade on both the Toronto and New York Stock Exchanges under the symbol ENB. Ask a financial adviser if they are appropriate for you.
The bottom line is that even in these uncertain times there are some decent places for your money. So don’t despair — there is no problem that doesn’t have a solution. Happy New Year!
Gordon Pape’s new book, Retirement’s Harsh New Realities, is now available in bookstores and online. Copies can be ordered at 28% off the suggested retail price at buildingwealth.ca.
Article from Money Ville