Pipelines have been in the news. Canada’s largest pipeline company, TransCanada Corporation (symbol TRP on Toronto) has made headlines with its ongoing disagreement with the U.S. government over the completion of its Keystone XL pipeline to the Gulf Coast. The Obama administration blocked the Nebraska section of the project last November, citing environmental concerns. TransCanada has submitted a proposal for a re-routing of the pipeline and is awaiting a new environmental review.

Pembina Pipelines had attracted much less attention until it came up with some interesting news of its own this year: the purchase of a firm with significant assets in natural gas liquids (NGL).

PEMBINA PIPELINE (Toronto symbol PPL; www.pembina.com) owns pipeline systems with a total length of over 7,500 kilometres. These lines pump oil and gas from fields in B.C. and Alberta to refineries, or feed into major pipelines, such as the Enbridge Pipeline System.

Pembina also owns the Syncrude, Horizon and Cheecham pipelines, which pump crude oil from the Alberta oil sands. In addition, the company holds a 50% stake in the Fort Saskatchewan Ethylene Storage Limited Partnership. It also owns the Cutbank Complex, a network of natural gas gathering and processing facilities.

Don't miss your chance to download Pat McKeough’s new FREE report, "Dividend Paying Stocks: How High Dividend Stocks Can Supercharge Your Income Investing." In this exclusive report, Pat shows you how to spot the best dividend paying stocks for your portfolio—and avoid the ones that could steer you into a financial disaster. Click here to download your copy and get started right away.

Dividend stocks: Pembina pays $3.2 billion for natural gas liquids firm

In the three months ended December 31, 2011, Pembina’s cash flow rose 2.9%, to $66.8 million, or $0.40 a share, from $64.9 million, or $0.39 a share, a year earlier.

In January 2012, Pembina bought rival Provident Energy, which extracts, transports and stores natural gas liquids (NGLs), for $3.2 billion. This purchase was the main reason for the higher cash flow.

Thanks to the higher cash flow, Pembina raised its monthly dividend by 3.8%, to $0.135 from $0.13, with the April 2012 payment. The shares now yield 5.4%.

In the latest issue of Canadian Wealth Advisor, we assess whether Provident Energy is a good fit with Pembina, and what the expansion into NGLs will mean for the company’s operations. We conclude with our clear buy-hold-sell advice on the stock.

COMMENTS PLEASE

Do you approve or disapprove of the Obama administration’s efforts at blocking the TransCanada’s Keystone XL pipeline? Do you think that TransCanada faces any reprisal risk from environmentalists in the Obama administration for fighting back? Let us know what you think in the comments section below. Click here.

Q: Pat, here’s an interesting question. As I get closer to retirement, do you think I’ll be able to live off my dividends? How should I go about it?

Pat McKeough: I think dividends play a very important role in retirement, but not quite the way people think of it. A history of 10 or 15 years, or five years of dividends, is kind of a pedigree for a stock. It tells you the stock has been looking after its investors for a good period of time.

And that record of dividend payments is something you can’t fake. So it’s a very good idea in retirement to confine your buying to stocks that do have a dividend record, not just a current dividend.

But if you’re investing the way a stock market investor should, there’ll be some years when you need to sell things, whether it’s a stock that’s being bought in a takeover, or whether it’s come to be too big a part of your portfolio. Then that’s something you’re going to want to sell part of or all of.

And when that happens, capital gains are every bit as spendable as dividends. So people like to think, can I make a passive income portfolio; that I’ll just set it up once and forget about it. And I think it’s a mistake to do that. Some people think that buy-and-hold means buy and forget about it, but it really should be buy, hold and watch carefully.

And when you do that with stocks that pay dividends, you have fewer unpleasant surprises and a better, more stable source of retirement income.

The first step to building real wealth is to follow safety-conscious money strategies. That’s what you get with Canadian Wealth Advisor, Pat McKeough’s newsletter for conservative investors. Canadian Wealth Advisor consistently recommends investments that prove you don’t have to take outsized risks to get outsized returns—well-established dividend stocks, ETFs and REITs.

As a new subscriber you can save $50.00 on an introductory subscription. Click here to start your risk-free subscription to Canadian Wealth Advisor now.

TELUS CORP. (Toronto symbols T and T.A; www.telus.com) gets most of its growth from wireless services. Its 7.3 million subscribers across Canada now supply 52% of its earnings.

The remaining 48% of Telus’s earnings comes from its wireline division, which mainly consists of 3.6 million traditional phone customers in B.C., Alberta and eastern Quebec. This division also includes 1.3 million Internet users and 509,000 TV customers.

Telus added 369,000 wireless subscribers (net of deactivations) in 2011. That’s down 17.4% from a net gain of 447,000 users in 2010, mainly due to the loss of a contract with the federal government.

Even so, Telus continues to benefit as more of its subscribers opt for smartphones. These users now account for 53% of Telus’s wireless subscribers under long-term contracts, up from 33% a year earlier.

Telus also sells most of its smartphones under long-term contracts, which makes it harder for users to switch providers. Customers under long-term contracts now account for 83.5% of its total wireless customers, up from 81.8% a year earlier.

Don't miss your chance to download Pat McKeough’s new FREE report, "Dividend Paying Stocks: How High Dividend Stocks Can Supercharge Your Income Investing." In this exclusive report, Pat shows you how to spot the best dividend paying stocks for your portfolio—and avoid the ones that could steer you into a financial disaster. Click here to download your copy and get started right away.

Dividend stocks: Telus plans to merge two classes of shares into one

Telus’s overall revenue in 2011 rose 6.2%, to $10.4 billion from $9.8 billion in 2010. Wireless revenue rose 9.0%, while wireline revenue rose 3.3%. Earnings rose 15.5%, to $1.2 billion from $1.05 billion. Earnings per share rose 14.4%, to $3.74 from $3.27, on more shares outstanding.

Telus now plans to merge its common and class A non-voting shares into a single class of shares. If shareholders approve, each non-voting share will become one common share.

Telus also recently raised its quarterly dividend by 5.2%, to $0.61 a share from $0.58. The new annual rate of $2.44 yields 4.3% for both classes.

In the latest edition of The Successful Investor, we look at the potential risks and rewards of the company’s decision to increase spending on its wireless and high-speed Internet networks. We also consider the possible consequences of its plan for a single class of shares and the sustainability of its current dividend. We conclude with our clear buy-sell-hold advice on the stock.

You get our recommendation on Telus and many more of the top dividend stocks for Canadian investors when you try a risk-free introductory subscription to The Successful Investor. As a new subscriber, you can save $50.00 — and get all the details on “My #1 Stock Pick for 2012.” Click here to take advantage of this special subscription offer.

Some investors tell us that, while they like our approach to investing, they have a nagging concern about what one person called our “all-equities philosophy.” They wonder whether investors should hold some bonds to reduce the volatility in their portfolios. Often, their brokers will recommend that they do.

Our relative view of stocks and bonds is based on today’s realities

Our stance on equities shouldn’t be categorized as “philosophy.” It’s a matter of history. Specifically, it’s a reaction to today’s economic and investment situation. Up till the mid-1990s, in fact, we routinely advised that fixed-return investments, such as bonds, should make up anywhere from one-third to two-thirds of a conservative investor’s portfolio.

Back then, fixed-return investments paid 8% to 10% a year. That was close to the long-term returns available from the stock market. Of course, fixed-return investments leave you fully vulnerable to inflation, unlike stocks.

But back in the 1990s, we saw little risk of inflation. In addition, we felt interest rates were likely to move sideways to downwards for an extended period, and that’s a favourable environment for bonds.

Now, we believe zero is a good proportion for bonds with a term of any more than two to three years. The best you can get from bonds now is the 3% or 4% interest they offer. The worst that can happen is that you will lose money, or at least lose purchasing power.

Don't miss your chance to download Pat McKeough’s new FREE report, "Dividend Paying Stocks: How High Dividend Stocks Can Supercharge Your Income Investing." In this exclusive report, Pat shows you how to spot the best dividend paying stocks for your portfolio—and avoid the ones that could steer you into a financial disaster. Click here to download your copy and get started right away.

Stocks and bonds offer different odds

In our opinion, bonds now offer you a “heads-you-break-even, tails-you-lose” situation. That’s the exact opposite of our ideal investment, which offers odds that are more like “heads you break even, tails you win.”

As you probably know, a bond pays a fixed rate of interest during its life. Eventually, a bond matures, and holders get the bond’s face value, and nothing more. Note that receiving the fixed interest and face value at maturity is the best that can happen. Corporate bonds can go into default. Inflation can devastate the purchasing power of bonds and all fixed-return investments.

Bond prices and interest rates are inversely linked. When bond prices go up, interest rates go down, and vice-versa.

Bonds have been in a period of rising prices (a bull market) since 1981. That year, long-term interest rates reached an historic turning point when long-term U.S. Treasury bond yields peaked near 15%. Ever since, interest rates have gone through wide fluctuations, but they have essentially headed downward.

Today, interest rates just don’t have that much further to fall. But under certain conditions, interest rates could go substantially higher. Remember, when interest rates go up, bond prices drop.

Even so, brokers continue to sell bonds to their clients. That’s partly because most of today’s brokers had not yet entered the investment business when the bull market in bonds began in 1980. All they know is that bonds do tend to reduce the volatility of your portfolio, since they tend to rise when stock prices fall. Of course, bonds also generate more commission fees and income for the broker, compared to stocks, especially if you buy them via bond funds and other investment products.

Our investment advice: If you are reluctant to hold a 100%-stocks portfolio — and many people are — then one alternative to consider is to keep a portion of your investment funds in relatively short-term fixed-return investments, with maturity dates of a few months to no more than two to three years in the future. These fixed-return investments will lose value when interest rates rise, but not enough to make a serious dent in their value, because of their short terms. You can hold them till maturity, then get your money back and reinvest. Our advice is to stay out of long-term bonds.

Canadian Wealth Advisor covers safe money investments for turbulent times, primarily ETFs, REITs and well-established dividend-paying stocks. You can get a special risk-free introductory subscription to Canadian Wealth Advisor at a savings of $50.00 off the regular rate. Click here to get started right away.

Earnings per share rose 32.3%, to $11.83 from $8.94, on more shares outstanding. Apache also raised its dividend by 13.3%. The new annual rate of $0.68 yields 0.6%.

Apache is a buy.

The company has cut its quarterly dividend by 46.7%, to $0.10 a share from $0.1875. The new annual rate of $0.40 yields 8.7%. The cut should free up cash that Frontier can use to lower its $8.2-billion long-term debt, which is a high 1.8 times its market cap. It also needs to keep investing in its network upgrades.

Frontier is still a hold.

ALLIANT ENERGY CORP. $43 (www.alliantenergy.com) plans to sell subsidiary RMT Inc., which specializes in wind- and solar-power projects. This business’s losses ballooned in 2011, mainly due to delays at a solar project in New Jersey. Alliant expects to record a charge of $0.10 to $0.14 a share in connection with the sale. Excluding RMT’s losses and other unusual items, the company expects to earn $2.75 to $3.05 a share in 2012. It earned $2.76 a share in 2011. Buy.

BUCKEYE PARTNERS L.P. $60 (www.buckeye.com) has raised its quarterly distribution for the 31st consecutive quarter, to $1.0375 a unit from $1.025. The new annual rate of $4.15 yields 6.9%. However, its growth-by-acquisition strategy adds risk. Hold.

Meanwhile, the supermarket operator’s sales rose 3.4% in the three months ended December 17, 2011, to $2.7 billion from $2.6 billion a year earlier. Metro recently paid $157.3 million for 55% of Marché Adonis, which sells foods from Greece, Turkey, Lebanon and other Mediterranean countries. This purchase added $33 million to Metro’s sales in the quarter. On a same-store basis, sales rose 1.7%.

Earnings rose 8.6%, to $103.7 million from $95.5 million. Earnings per share rose 11.0%, to $1.01 from $0.91, on fewer shares outstanding. The company also raised its quarterly dividend by 11.7%, to $0.215 a share from $0.1925. The new annual rate of $0.86 yields 1.7%.

Metro is a buy.

PENGROWTH ENERGY CORP. $9.90 (www.pengrowth.com) will focus on developing its western Canadian oil properties in 2012. Due to lower natural gas prices, it will hold off on further investments in its gas properties during the year. Buy.

ROYAL BANK OF CANADA $54 (www.rbc.com) has formed a new alliance with Shoppers Drug Mart, which operates over 1,200 drug stores in Canada. Under the deal, Shoppers’ customers can use a new Royal Bank Visa credit card to earn reward points on their purchases. The bank will also install 300 new automated teller machines in Shoppers’ stores. Buy.

Like IBM, Tupperware continues to see strong demand for its products, particularly in fast-growing countries like Brazil, Indonesia and Turkey. These markets now supply 63% of the company’s sales.

Also like IBM, Tupperware continues to aggressively repurchase its shares. Buybacks raise earnings per share and other per-share calculations, and give the remaining shareholders a larger stake in the company.

The stock is up 35.9% since we made it our #1 pick for 2011. However, Tupperware makes many of its products, including its food containers, from oil-based plastic resins. Higher oil prices could slow its earnings growth.

Even so, earnings in 2011 probably rose 21.0% to $4.50 a share. The stock trades at 13.8 times that estimate. Tupperware’s earnings in 2012 could rise 10% to $4.95 a share. That gives the stock a p/e ratio of just 12.5.

Tupperware’s annual dividend rate of $1.20 yields 1.9%. The rate will undoubtedly rise in 2012, because the company now links annual dividend hikes to increases in its earnings.

Tupperware is still a buy.