There’s a money-saving new way to buy blue-chip U.S. dividend stocks

When Canadian Depositary Receipts were launched about 18 months ago, they offered an appealing new way for investors to get access to big U.S. tech stocks.

The latest batch of CDRs are a reminder that there’s much more to these securities than tech now. Specifically, there’s a good selection of dividend-paying stocks.

The latest five CDRs include Procter & Gamble Co. (PG-NE), a classic dividend-growth stock. P&G has a 66-year history of dividend increase, the most recent being a 5-per-cent bump in April. Another new CDR is United Parcel Service (UPS-NE), which has been a strong dividend grower in recent years, and in early December offered a yield around 3.2 per cent.

CDRs, which trade on the NEO exchange, offer a money-saving advantage over buying U.S.-listed shares. You don’t have to undergo the costly process of your broker converting your Canadian money to U.S. dollars, and you don’t have to pay brokerage commissions priced in U.S. dollars, either. Instead, your Canadian dollars will be converted at a more favourable institutional rate by the managers of the CDR.

CDRs are currency hedged and thus unaffected by fluctuations in the Canada-U.S. exchange rate. Also, they’re much more affordable than many U.S.-listed stocks because their price at launch is set in the $20 range. P&G shares listed on the New York Stock Exchange have traded in the US$150 range lately, while the NEO-listed CDR version recently traded around C$26. Each CDR is equivalent to a fraction of a U.S.-listed share.

P&G’s yield was around 2.5 per cent, a reminder that blue-chip U.S. dividend stocks often have yields that are lower than we commonly see in the Canadian market. Two other recently launched CDRs are Honeywell International Inc. (HON-NE) and CVS Corp. (CVS-NE), both with yields around 2 per cent.

The highest-yielding name among the stocks included in the recent CDR wave is Abbvie Inc. (ABBV-NE), at 3.5 per cent. Again, there’s a solid record of dividend increases at this pharmaceutical company.

There are now 35 CDRs listed on NEO, all but 10 or so of them dividend-payers. Verizon Communications (VZ-NE) was the yield leader in early December at 6.8 per cent, followed by IBM (IBM-NE) at 4.4 per cent.

Dividends from CDRs are taxed the same as those paid by the shares of companies listed on U.S. exchanges. Consult this dividend investor’s tax guide for details on that.

-- Rob Carrick, personal finance columnist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

Canadian Imperial Bank of Commerce (CM-T) After reporting disappointing quarterly financial results on Thursday, CIBC’s share price fell 7.7 per cent, which is an unusually severe one-day decline for a big-bank stock. The share price is now down 28 per cent from a high point in early February, making it the worst performer among its peers over this period. But CIBC also stands out with an attractive dividend yield of 5.7 per cent and a valuation that is at the low end of its historical range. Does that make it a bargain worth betting on? David Berman shares his thoughts.

The Rundown

Market uncertainty is unusually high right now - and so are the number of bullish assumptions

After months of losing money on just about everything they owned, investors suddenly made money on almost anything they touched in November. What’s driving this suddenly upbeat mood? There could be two major factors. First is a conviction that the world is over the worst when it comes to inflation. Second is the widespread belief that China is going to have to ditch its zero-COVID strategy and reopen its economy after a couple of years of rotating lockdowns. A couple of other assumptions also seem important. One is the idea that any recessions will be brief and mild. Finally, there is the notion that oil and other energy prices are no longer in danger of running out of control. All four ideas seem reasonable enough when examined one by one. What’s not so clear, says Ian McGugan, is how easily they fit together when taken as a whole.

Looking to capitalize on all-time highs? Check out the Champagne portfolio

The Canadian stock market bounced off its October lows and is tantalizingly close to being in the black for the year. The possibility of new highs prompted Norman Rothery to take a second look at the Champagne portfolio. It invests in the Canadian stock market after it hits new all-time highs and hides out in Canadian bonds the rest of the time. It offers strong upside potential along with a history of much better performance than the stock index during most crashes.

Mishandling boring old cash as an investor will cost you the easiest 3 to 4 per cent you’ll ever make

There’s a corner of the financial world where interest rates never increased this year. Check your brokerage account for full details. Accounts at full-service and digital brokers typically pay zero interest on uninvested cash these days, just as they did in the before-times prior to the rate surge of 2022. Rob Carrick has some better ideas on what to do with your cash holdings.

What billion-dollar fund manager Lyle Stein has been buying and selling

Money manager Lyle Stein was among the camp of investors who didn’t believe inflation would be “transitory,” as the U.S. Federal Reserve and some other economy-watchers forecast last year. His portfolios were light on fixed income, heavier in cash and targeted an average equity allocation during most of 2021 to protect from what he anticipated would become stubbornly high inflation. His strategy has helped his clients maintain the value of their investments this year. The Globe and Mail recently spoke to Mr. Stein about his investing style and what he has been buying and selling.

Wall Street hunts for recession plays to weather potential 2023 turbulence

Investors are eyeing everything from the U.S. health care sector to British stocks and gold as potential havens during a recession, as worries grow that the U.S. Federal Reserve’s interest rate increases will bring on an economic downturn next year. David Randall of Reuters reports.

Also see: Will the Fed ‘raise and hold’ rates? Traders bet they will not

Bargains begin luring big banks back to China bets for 2023

As Chinese assets whipsaw around hopes and fears over the country’s path out of the pandemic, big offshore investors are slowly leaving the sidelines as they plot a cautious return to one of the year’s worst-performing equity markets. The drumbeat of bullish outlooks has grown a bit louder over recent weeks as analysts at Citi, Bank of America, and J.P. Morgan upgraded recommendations, and said re-opening can lift consumer-exposed stocks that have fallen to attractive prices.

Why it might be time to reconsider those bond ETFs

After being pummelled earlier this year, bonds are back in favour as investors bet that central banks in the U.S. and Canada are set to slow and potentially end interest rate hikes in the weeks and months ahead. More capital has been flowing into fixed-income exchange-traded-funds amid a rough doubling of overall yields. As Paul Brent reports, beefing up bond holdings through ETFs makes sense because a large percentage of underlying fixed-income securities are trading at a discount.

How to invest, profit and give back using ETFs

It’s often said that it’s better to give than receive, but a growing crop of exchange-traded funds offers investors the ability to give to charity and potentially profit at the same time, reports Joel Schlesinger.

Others (for subscribers)

SNC-Lavalin dropped from major stock index to add new Brookfield company

Monday’s analyst upgrades and downgrades

Globe Advisor

‘Overly pessimistic’ view of retailers in challenging holiday season creates cheaper valuations

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

What’s up in the days ahead

The Contra Guys are back with a stock recommendation for those hungry for an inflation-friendly name: Fresh Del Monte. Plus, Gordon Pape updates us on his buy and hold portfolio.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Compiled by Globe Investor Staff