Canadian Focus Investors
Stable Industries, Dominant Companies
Dividend growth drives the compounding principle for individual stocks in a way that is certain and inevitable.
1
Lowell Miller
The profitability of companies operating in some economic sectors in Canada can vary significantly and unpredictably from year to year. For example, the annual earnings of companies operating in the mining industry, or in oil and gas production, will vary depending on fluctuations in world prices for these commodities. When the price of oil falls dramatically, oil producers revenue can also fall to the point where they may experience losses. The smaller junior oil producers are particularly vulnerable to changes in oil and gas prices and many of them become insolvent when prices fall steeply.
There are other economic sectors, such as consumer retail, where price competition is so fierce, that profit margins are chronically low. As a result, negative events, such as a strike or a disruption in the supply chain, can result in unpredictable losses in some years.
Fortunately, in Canada, history has shown that there are four economic sectors that, for a variety of reasons, are relatively stable. The companies that dominate these industries are listed on the adjacent table and, if you have live in Canada, you have probably heard about them. These are the companies you want to hold in your portfolio, provided you can purchase their common shares at a fair price.
1. Lowell, L. 2006. The Single Best Investment, Creating Wealth with Dividend Growth. The Print Project, P.O. Box 703, Bearsville, NY 12409, p.174