Building for tomorrow

Globe Investor Magazine, November 18, 2008

If you follow the guidelines here, you'll be on your way to building a portfolio that pays you more and more cash every year.

PIPELINES
Can't stomach the volatility of commodities?
The nice thing about pipelines is that they collect their tolls whether oil and gas prices are rising or falling. That predictable earnings stream makes stocks such as E nbridge Inc. ideal for dividend investors. Enbridge's dividend has grown at an average annual rate of about 10% over the past half-century, and with about $12 billion of new pipeline projects coming on stream between now and 2011 as the company ships more crude from the oil sands, you can bet more dividend increases are on the way.

CABLE & WIRELESS STOCKS
Don't get mad at your cable company. Buy its stock. Rogers Communications Inc. is a newcomer to the dividend growth game, but it's quickly established itself as a serious player. C anada's biggest wireless and cable provider has boosted its dividend by a whopping 97% annually over the past five years, and with free cash flow growing at double-digit rates and expected to top $1.5 billion this year, there's plenty of ammunition for more increases. E ven in a recession, folks will keep using their cellphones, surfing the I nternet and watching cable TV.

BANKS
The credit crunch crushed bank stocks. That's the bad news. The good news? Their dividend yields have soared to the highest in years relative to government bonds, making this a buying opportunity for long-term investors. The Big F ive all posted double-digit dividend growth over the past five years, and when the current economic storm passes, dividend increases should come back into fashion.

INSURERS
Life insurance stocks have been hammered this year, but they should recover over the long term. These stocks typically have lower yields than the banks, but their dividends have grown at a faster pace. Manulife Financial C orp., Sun Life F inancial Inc. and Great-West Lifeco I nc. are all expected to raise their dividends over the next three years, although the credit crunch will likely slow the pace of increases. F or buyand- hold investors, this may be a decent entry point.

CONSUMER STAPLES
You can get everything you need from Shoppers Drug Mart- diapers, milk, pain relievers, even rising dividends. Since declaring its first quarterly dividend in 2005, C anada's biggest drugstore chain has already doubled its payment. A nd with sales growing by an average of 9% annually over the past three years, and profits rising by an even more impressive 17%, there's more where that came from. A nother great place to look for consumer stocks is the U .S. market, home to such dividend growth stars as Johnson & Johnson, Procter & Gamble, Coca-Cola and Wal-Mart Stores.

MUTUAL FUND COMPANIES
Instead of paying hefty fees for the privilege of owning mutual funds, why not put some of those fees in your own pocket by buying shares of fund companies? IGM F inancial, Canada's largest independent fund company, yields more than 5% and has been hiking its dividend at double-digit rates. Sure, the recent market mayhem has hurt mutual fund sales, but the shares should rebound when financial markets recover.

REITs
REITs don't meet our strict dividend growth criteria, but their high yields and special tax treatment still make them attractive for income investors. Canada's largest REIT, RioCan Real Estate Investment Trust, owns more than 200 retail properties anchored by solid tenants such as Canadian Tire, Wal-Mart and Loblaws. The units recently yielded a juicy 8.6%, but don't expect the distribution to rise much in the next few years, especially if Canada slips into a recession

UTILITIES
Fortis serves nearly two million natural gas and electricity customers across the country, making it the largest investor-owned distribution utility in C anada. But if you want to see some real power, check out its dividend, which has been climbing for 35 years as F ortis's profits march steadily higher. The company, which also owns hotels and non-regulated power generating assets, in 2007 posted its eighth consecutive year of record profit.

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