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Income 100: Summer 2008

Do you dream of relaxing on a sunny beach, drink in hand, while your investment portfolio throws off piles of cash? That's the life of an income investor. To help you get to that beach as quickly as possible, we have once again ranked the biggest trusts and stocks in Canada based on their ability to put steady streams of cash into your wallet.

Before we reveal the top picks in our fourth annual Income 100, let's begin by checking out how our Income 100 from last year performed. As you will recall, we examined 50 trusts and 50 stocks. We assigned them letter grades ranging from A, for absolutely excellent, all the way down to D, for dreadful.

Out of the 50 trusts we examined, only 18 garnered an A or a B on our grading system. We're pleased to say that these top-graded trusts gained an average of 13.2% over the last year, including distributions. The double-digit return from these trusts extends our record of success. Since we started grading trusts in 2005, our top-graded trusts have gained a total of 64.0%. (That's assuming you bought the top trusts each year and rolled your portfolio into the new picks in the following year.)

We measure the performance of our rating system by comparing our top picks against the Barclays Advantaged S&P/TSX Income Trust Index Fund, which reflects a wide swath of the income trust market. This year the index fund gained 9.1%, so our selections added 4.1 percentage points of value. Since we started ranking trusts in 2005 the Barclay's fund has gained 31.6%. Our top trusts have more than doubled the index's performance over that period.

We wish we could say that last year's top picks among dividend-paying stocks produced as much profit for investors. The problem was that many of the biggest dividend-paying stocks in Canada also happen to be financial service firms - think banks and insurance companies. As you may have noticed, the sub-prime mortgage problems south of the border walloped global credit markets and most financial service firms. The iShares Canadian Dividend exchange-traded fund (TSX:XDV), which tracks 30 of the largest dividend stocks in Canada, lost 7% last year. The good news is that our top income stocks - those rated either A or B - outperformed the index by 3.1 percentage points. The bad news is that despite beating the index, our stock picks still lost 3.9%.

Despite that setback, we're pleased with our results for the third annual Income 100. With both trusts and stocks, we managed to add value to what an index fund would have produced. In fact, we have now beaten our benchmarks each and every year we've produced our listing. But we want to stress that the market can be a fickle thing. We expect to lose money some years and lag behind our benchmarks from time to time.

How do we arrive at our grades? We base them on yield, reliability, and value. We give the best marks to firms that trade at reasonable prices while providing healthy and stable yields. (We invite you to learn more about the many factors that go into our grades by reading last year's Income 100 article.)

Despite the high-powered math that lies behind our rankings, our results can be understood by anyone who's gone to grade school. Trusts and stocks that are top cash generators earn an A. Good ones pick up a B. Solid but unspectacular candidates slip through with a C. Less attractive firms go home with a D or even an F.

We're not saying that each and every A-rated firm will generate enough cash to retire on. A few may disappoint. But our A-rated picks deserve your attention because they appear to possess the necessary factors for success. On the other hand, we recommend caution when considering bottom-of-the-class situations.

Our grades are based purely on the numbers. We don't factor in our personal opinions about a sector or a firm. Instead, we delve into the Bloomberg database for detailed financial information on each trust or stock. For the Income 100 we restrict our ratings to Canada's 100 largest income generating trusts and 100 largest stocks by market capitalization. If a company doesn't pay a dividend, or a trust doesn't pay a distribution, we kick it out of our analysis and pick the next biggest firm. We remove companies or trusts that have been around for less than a year and we also shun any candidates that lack the robust financial data we need for our detailed analysis.

After a great deal of number crunching, we arrive at the final grades for each of our 100 trusts and 100 stocks. This year, only a few candidates earned an A, but more managed a solid B. We think both the A and B groups are well worth your consideration.

Keep in mind that numbers can never tell the entire story. Smart investors are always on the lookout for businesses with unique or intangible features that might not be reflected in the hard numbers.

BCE is a good example. The venerable telecom company earned an A on this year's ranking, but it's in an unusual position. A consortium led by the Ontario Teachers' Pension Plan is looking to take the company private at $42.75 per share. The takeover is supposed to be completed by the end of the second quarter. Problem is, the market has strong doubts that the deal will be finalized. If the transaction goes through, shareholders will pick up a handy profit from current prices. If it fails, BCE will likely fall significantly. Our grading methodology can't take such situations into account. That's why you should always look beyond the numbers for other factors that can affect an investment.

The best way to use our grades is as a starting point for your own research. Before buying any A or B stock, make sure that a firm's situation hasn't changed in an important way. Read press releases, regulatory filings, and recent news stories to get up to speed on the latest developments. Like any screening strategy, the purpose of the Income 100 is to help you find a few good ideas that you can then investigate in more detail.

Download the table of the top 100 Stocks (a .xls file)
Download the table of the top 100 Trusts (a .xls file)

From the Summer 2008 issue

  MoneySense Articles
 Cdn Top 200 2016
 US Top 500 2016
 Retirement 100: 2015
 Cdn Top 200 2015
 US Top 500 2015
 Retirement 100: 2014
 Cdn Top 200 2014
 US Top 500 2014
 Retirement 100: 2013
 Cdn Top 200 2013
 US Top 500 2013
 Retirement 100: 2012
 Buffett Buys
 FB IPO
 Stocks that pay
 Value in the S&P500
 Cdn Top 200 2012
 US Top 500 2012
 Retirement 100: 2011
 Where to invest $100k
 Where to invest $10k
 Summer Simple Way
 A crystal ball for stocks?
 Cheap & safe
 Risky business
 Cdn Top 200 2011
 US Top 500 2011
 Retirement 100
 Dividend investing
 Value investing
 Momentum investing
 Low P/E P/B
 Dividends
 Dividend growers
 Cdn Top 200 2010
 US Top 500 2010
 Graham's prescription
 Income 100: 2009
 The case for optimism
 Cdn Top 200 2009
 U.S. Top 500 2009
 Wicked investments
 Simply spectacular
 Income 2008
 Small stocks, big profits
 Cdn Top 200 2008
 US Top 500 2008
 Value that sizzles
 So simple it works
 Income 100
 No assembly required
 Investing by the book
 Cdn Top 200 2007
 US Top 500 2007
 Invest like the masters
 A simple way to get rich
 Top Trusts 2006
 Stocks for cannibals
 Car bites dogs
 Cdn Top 200 2006
 US Top 1000 2006
 So easy, so profitable
 Top Trusts 2005
 Dogs of the Dow
 Top 200 2005
 Money for nothing
 Yield of dreams
 Return of the master

MoneySaver Articles
 2 Graham Stocks for 2017
 3 Stingy Stocks for 2016
 5 Graham Stocks for 2016
 3 Stingy Stocks for 2015
 3 Graham Stocks for 2015
 3 Stingy Stocks for 2014
 4 Graham Stocks for 2014
 8 Stingy Stocks for 2013
 6 Graham Stocks for 2013
 9 Stingy Stocks for 2012
 8 Graham Stocks for 2012
 Simple Way 2011
 5 Stingy Stocks for 2011
 7 Graham Stocks for 2011
 Simple Way 2010
 5 Stingy Stocks for 2010
 8 Graham Stocks for 2010
 Simple Way 2009
 Timing Temptation
 19 Stingy Stocks for 2009
 4 Graham Stocks for 2009
 Simple Way 2008
 Active at Passive Prices
 Unbundling ETFs 2008
 5 Stingy Stocks for 2008
 5 Graham Stocks for 2008
 Is your index too active?
 Graham's Simple Way
 Canadian Graham Stocks
 5 Stingy Stocks for 2007
 8 Graham Stocks for 2007
 Top SPPs
 The Simple Way
 A hole in your IPO?
 Monkey Business
 8 Stingy Stocks for 2006
 Graham Stock Gainers
 Blue-Chip Blues
 Are Dividends Safe?
 SPPs for 2005
 Graham's Simplest Way
 Selling Graham Stocks
 RRSP Money Market Funds
 Stingy Stocks for 2005
 High Performance Graham
 Intelligent Indexing
 Unbundling Canadian ETFs
 A history of yield
 A Dynamic Duo
 Canadian Graham Stock
 Dividends at Risk
 Thrifty Value Stocks
 Stocks in Short Supply
 The New Dividend
 Hunting Goodwill
 SPPs for 2003
 RRSP: don't panic
 Desirable Dividends
 Stingy Selections 2003
 10 Graham Picks
 Growth Eh?
 Timing Disaster
 Dangerous Diversification
 The Coffee Can Portfolio
 Down with the dogs
 Stingy Selections
 Frugal Funds
 Graham Revisited
 Just Spend It
 Ticker Temptation
 Stock Mortality
 Focus on Fees
 SPPs for the Long Term
 Seeking Solid Stocks
 Relative Strength
 The VR Approach
 The Irrational Investor
 Value Investing

Globe & Mail Articles
 Indexing advice
 Media-shy stocks
 Curse of size
 Market uncertainty
 Be even lazier
 Scary beats safe
 Small, illiquid, value
 Use the numbers
 What value is good value?
 Sculpt for value
 Value vs CAPE
 Graham Rules
 CAPE vs PeakE
 Top value ratio
 Low Beta
 Value and dividends
 Walter Schloss
 Try unloved AIG
 Why I'm a value investor
 New world of ETFs
 Low P/Es possible
 10 yielders
 Be happier
 Long-Short
 Dividend Downside
 Shiller's P/E
 Copycat investing
 Cashing in on class
 Index roulette
 Theory collides
 Diving too deep
 3 retirement villains
 Scourge of inflation
 Economic omens
 Analyst Expectations
 Value stock scarcity
 It's all in the index
 How to pick good funds
 Low Beta Wins
 Hunt for dividend stocks
 Think garage sale

Advisor's Edge Articles
 Passive Rebundling
 Doing the math

Norm Speaks
Flip Books

Tools:
 Asset Mixer
 Periodic Table
 ETF Fee Calculator



 
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