Low Volatility, High Return Investments in the High-Yield Canadian Utility Sector: One of the Top 10 Equity Analyst Interviews of 2013

Wall Street Transcript

67 WALL STREET, New York - December 6, 2013 - The Wall Street Transcript has just published its Top Ten Equity Analyst Interviews of 2013 Report. This special feature contains expert industry commentary through in-depth interviews with highly experienced Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Oil & Gas -- Biotech -- Utilities -- Industrials

Companies include: High Dividend Canadian Utility Stocks

In the following excerpt from the Top Ten Equity Analyst Interviews 2013 Report, an experienced Canadian utility research analyst discusses his methodology and top picks for the sector for investors:

TWST: As you said, many of your companies pay a dividend. What are the advantages and disadvantages of paying a dividend?

Mr. McIlveen: For these companies, paying a dividend means that they are always going to have a decent market valuation in terms of its multiples. These companies are paying out anywhere from 50% to 80% of their free cash flow. It doesn't leave a lot for them to reinvest. However, when they build a new power project, generally they come back to market to get funding, but at least when they do, they have great access to capital at fair market multiples.

TWST: But don't they lose something by paying out rather than reinvesting into the company?

Mr. McIlveen: They reinvest what is left. Typically, as a group, they average something like a 65% payout ratio. That means 65% of their free cash flow is going out of the door in terms of a dividend. That is why these have higher yields than things like banks and other financial institutions, because it is such a high payout ratio relative to those.

In terms of the macro interest rate risk, I think what you want to do to guard against that is actually buy the ones that have the lower yield as opposed to the higher yield. If it has a low yield, it means the market is expecting a dividend increase. If you are buying a stock with a track record of dividend increases, then that's going to protect you somewhat when interest rates do start to rise...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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