Who in your merry merry month of May?

Rob Carrick's column in today's Globe and Mail is altogether Canadian, title allusion and all.

He draws attention to a few 'beautiful losers' (so called because they didn't rise as much as others in the recent rally), Canadian utility stocks that pay good reliable dividends (in the range of 3% - 6% as of the end of the week), are still reasonably priced, and may be worth adding to your portfolio. The list consists of several of the usual suspects: TransCanada, BCE, Fortis, Canadian Utilities, and Telus. And who shall I say is calling?

David Baskin, president of Baskin Financial Services, whom he interviewed, "is highlighting shares like this for conservative clients who are still wary of the markets and might otherwise put their money in bonds and treasury bills." Rob adds, "Share price appreciation is another reason to own stocks like these. Over the past five years, Fortis, Telus and Canadian Utilities have outperformed the S&P/TSX Composite on a cumulative basis." Who for his greed?

Of course, as a general rule (thank you, wise ml), seeing stock advice anywhere is not a prescription for prompt purchase. Check it out yourself first. Also, if the current market correction goes on for a while (or longer), the patient investor may be able to get their pick(s) here at an even better price. In Canada, sit on it over the long weekend. Timing and luck are of the essence... Who by accident?

An introduction to stocks

Companies raise money by issuing stocks. This is a brief introduction to common stocks — ordinary shares with voting rights attached. A company may have more than one class of stock, with different voting rights and dividend payments for each, e.g., class A and class B.

When you purchase stocks (shares, equities), you essentially own a piece of that company (and can go around and brag about it). As a shareholder, you have a claim on its assets, earnings, and have a say in its management. Even though you may not own stocks directly (in your portfolio), you most probably do in mutual funds or your pension plan.

Stocks are riskier investments that savings accounts, GICs, and bonds, but with risk comes the potential for bigger gains.

Here is information about a stock representative of what you'll find on any investment site. This one is a snapshot from the Globe and Mail (where a new format for stock quotes is in Beta) of Royal Bank of Canada common stock (its symbol here is RY-T; Yahoo! Canada Finance uses RY.TO) during a trading day in Toronto. We'll go through its main bits of information.

C$ 43.990 — the current price at 1:43pm (the quotes outside trading platforms are usually delayed, here by 15 minutes), which represents a net gain of 52 cents (or +1.20%) over yesterday's closing price (which was 43.99 - 0.52 = $43.47); the Open price (at which Royal Bank shares first traded today), at $43.24, was therefore slightly lower than yesterday's close
High, Low — today's price fluctuation
Bid, Ask — information on the current bid - ask haggle on the trading floor
Volume — the number of shares traded so far today
52-wk High, 52-wk Low — the trading price range of the stock during the last year (see also the one-year chart later below); if you were smart & lucky you would have bought Royal Bank on February 24th of this year (02/24)
Mkt Cap — market capitalization (market cap): the total dollar market value of all of a company's outstanding shares, i.e., the number of all its shares multiplied by the current share price. This figure gives you a company's size, as opposed to its sales or total asset figures. RBC's $61B makes it a large-cap company
EPS (ttm) — earnings per share in the past twelve months
P/E — price/earnings per share. Generally speaking, a high ratio of the share price to the company's earnings per share (a more expensive stock) suggests that investors are expecting higher earnings growth in the future, in comparison to companies with a lower P/E (cheaper stocks)
Forward P/E — forward price/earnings
PEG — price/earnings to growth
Annual Div. — some companies are even more attractive to the long-term investor, as they also issue dividends (usually quarterly) - part of the company's earnings are returned directly to its shareholders. For each Royal Bank share an investor receives $2.00 annually, which works out to a Yield (based on yesterday's closing price) of 2/(43.99-0.52) = 4.6%. So if you buy shares at roughly this price you'll get a return of 4.6% (unless the company gets into cash-flow troubles and cuts the dividend in the future, unlikely in the case of a Canadian bank) plus whatever appreciation the share price achieves (capital gains). Both dividends and capital gains are taxed outside a registered plan such as an RRSP or TFSA, but at a lower rate that interest income.

The quote box described above relates directly to the intraday chart below. The red dashed line is previous day's closing price. The trading volume is also tracked.

And here is the one year chart:

On the same Web page you'll also find the latest headlines related to the company, its annual financial results, and earnings estimates.

Finally, this chart compares Royal Bank's stock to the S&P/TSX Composite index (whose symbol on Yahoo! Canada Finance is ^GSPTSE) since 1995:

The two small, black arrows indicate stock splits, detailed at the bottom of the chart. In a split a company's existing shares are divided into multiple shares. Although the number of shares outstanding increases by the specific multiple, the total dollar value of the shares remains the same, as no real value is added. In a 2:1 split, you receive one additional share for each share you hold. One reason for stock splits is that a company's share price has grown too high for many investors to buy in round lots (for instance, this one). Pre-split chart values are adjusted, to provide a consistent picture.

You may also want to check out:

• OSC's Investor Education Fund:  How does the stock market work? Is this stock a good investment for me? How much do stocks pay? How do I buy and sell stocks and bonds?


• RBC Direct Investing's Education Centre:  Equities 101


• Investopedia's Stocks Basics.

TFSA, or tax-free profits for Canadians

The government of this wonderful country of Canada has introduced the new Tax-Free Savings Account (TFSA). Starting in 2009, Canadians aged 18 and older can save up to $5,000 every year in a TFSA. Investment income (interest, dividends, capital gains) earned inside a TFSA account will not be taxed, not even when the funds are eventually withdrawn (though losses are not deductible either).

Canadiens, open a TFSA account with one of the soundest banks in the world:

• Royal Bank of Canada
• Canadian Imperial Bank of Commerce
• Bank of Montreal
• Toronto-Dominion Bank
• National Bank of Canada

While a primary consideration should be given to contributing to an RRSP (for the immediate tax relief), the TFSA has several attractive features. It doesn't have to be converted into anything else by age 71. It's effectively invisible (both its earned income and money withdrawn from it) in regards to federal income-sensitive benefits and credits, an important point for e.g., future recipients of OAS (Old Age Security) pension. Any amounts withdrawn can be put back in the following year(s), without affecting the regular contribution room available.

Almost everything you might want to know about TFSAs can be found on the CRA (Canada Revenue Agency) site. For instance, if you don't manage to open such an account this year, you will not lose this year's $5,000 contribution room: you can open a $10K account in 2010.

As earned income is not a prerequisite for contributing to a TFSA (unlike an RRSP), you can gift money to your spouse and/or adult children for their TFSAs. The earnings in these accounts are not attributed back to you for tax purposes.

Note that if you purchase dividend-paying US stocks (e.g., Microsoft) in your TFSA, a 15% non-resident withholding tax applies to the dividends (unlike inside an RRSP or RRIF, but like in a RESP), which cannot be recovered.

Financial Post's TFSA Centre has a few investment ideas.

Adam Smith (1723-1790), who studied moral philosophy and is being considered by many the father of modern economics, once told a learned society in Edinburgh, "Little else is requisite to carry a state to the highest degree of opulence but peace, easy taxes, and a tolerable administration of justice."