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In the late 19th
century, a handful of fur traders set up a trading post in a
remote corner of northeastern Alberta. Those traders and their
employer, Canada's Hudson Bay Company, could have hardly imagined
that their obscure outpost would one day become the very center of
North America's oil boom.
But it's hard to ignore the transformation of Fort McMurray,
Canada -- a city so prosperous that it has been dubbed "Fort
McMoney" by local residents. Real estate prices have roughly
tripled in the past seven years; the median price of a single
family home stands at $650,000, up more than $150,000 in just the
past year alone.
And with the vacancy rate on rental properties stubbornly stuck
under 0.5%, entire extended families cram into small two-bedroom
apartments. Others choose to rent campsites on the edge of the
city to accommodate mobile homes. The town's population has
doubled in the past decade to 65,000 and is set to rise to more
than 100,000 by the end of 2012.
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So what's the attraction of this remote city where temperatures
regularly top out at less than zero degrees Fahrenheit?
It's
simple: cash.
The average salary in Fort McMurray stands at more than $125,000.
And due to a shortage of workers, those salaries are rising fast.
According to a recent story in The Wall Street Journal,
inexperienced truck drivers can earn more than $100,000 per year,
while experienced welders can see their salaries top $200,000.
On
top of all that, companies are offering outlandish perks to
attract skilled workers, including free housing, gourmet food and
even free flights back to Canada's more populous cities.
What's Driving this Boom?
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At the center of all of this prosperity sits as much as
1 trillion barrels of oil reserves locked in Canada's vast oil
sands. Fort McMurray is at the very heart of the Canadian oil
sands, the fastest-growing part of the nation's petroleum
industry.
And Canada is an absolutely crucial player in the energy
market. In fact, the nation is the United States' single largest
source of imported oil -- more important to U.S. oil supply than the entire Middle East.
Oil sands are a combination of a heavy, solid form of oil known as
bitumen mixed with sand, water and dirt -- producers heat the oil
sands to separate the bitumen. After a handful of additional
processing steps, bitumen can be used to make gasoline and other
refined products, just like conventional crude oil.
Oil sands are not a new resource. Native Americans used the
bitumen for centuries to waterproof their canoes, and early settlers
actually burned the sands to produce heat. But for most of the
20th century, the big oil producers ignored the oil sands -- the
price of crude was simply too low and conventional oil deposits
too abundant to make producing this resource economical.
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But that's changed.
With oil prices above $100 per barrel today, the
oil sands are immensely profitable for producers. And as
my charts show, investment and production are booming; oil
sands production currently stands at more than 1.1 million
barrels per day, more than one-third of Canada's total.
By
the end of 2010, oil sands production is expected to
approach 2 million barrels per day, close to two-thirds of
Canada's total output. In fact, the main constraints on
growth remain shortages of skilled labor and crucial
equipment -- the very shortages that have resulted in high
salaries and economic boom times for Fort McMurray.
China Looks to Tap
Oil Sands
The U.S. is the
primary destination for Canadian oil exports -- currently, more
than three-quarters of
Canada's exports go to the nation's southern neighbor. But other countries
are
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also interested in
Canada's natural riches. Chinese oil giant CNOOC made
headlines in 2005 when it invested in a handful of oil
sands projects. Chinese firms have already invested a total of
$300 million in Canadian oil sands plays so far, and more investment
is likely in the future. Clearly, this resource could be a
valuable source of oil to fuel China's growing demand.
And while many focus
solely on the oil industry, Canada is also a crucial supplier of
other natural resources. Canada remains the number one source of
natural gas imports into the U.S. market; Canadian production has
been key to meeting rapid growth in U.S. demand. And Canada also
ranks as one of the world's top five producers of commodities as
diverse as copper, uranium, gold, silver, zinc and lumber. All of
these resources are in high demand, particularly in fast-growing
emerging markets like China and India.
Canadian Stocks Deliver +178% Gains
Heavy exposure to commodity-related industries
has
been the key driver of outperformance for the Toronto Stock
Exchange (TSX) in recent years.
The TSX increased +178% from the end of 1999 through 2007,
compared to just +3.7% for the S&P 500.
Looked at another way, a $100,000
investment in Canada back in late 1999 was worth $278,000 by the
end of 2007, compared to just $103,700 for the same sized
investment in the S&P 500. And over the past two years alone,
the Canadian market has outperformed the S&P 500 by better than a
3-to-1 margin.
Meanwhile, the nation's stable economic
growth continues, with the Canadian economy expected to expand at
a roughly +2.5% clip in the coming year -- versus flat or possibly
even negative growth in the U.S. Even the Canadian real estate market continues to boom
despite weakness in the U.S. -- according to a recent survey
released by RE/MAX, Canadian real estate prices are up +98.7% over
the past decade, and prices continue to move higher. That's by far
the largest property boom in Canada's history.
Bottom line -- Canada's resilient economic growth and vast natural resource
wealth should continue for many years to come, leading to outsized profits for
investors.
Currency Gains Provide Additional Boost
And there's another kicker -- few people realize
that among the world's 16 major currencies, Canada's has been one
of the top performers against the U.S. dollar. In fact, the
Canadian dollar soared +19% against the dollar in 2007 -- far faster
than the euro's +12% rise. That means dividend payouts from
Canadian companies also surged +19% last year for U.S.
investors.
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The Canadian dollar is in the middle of a
long-term uptrend vs. the U.S. dollar, and I expect that uptrend
to continue in the coming years. That's great news for U.S. investors with
Canadian holdings because the value of their investments -- and
dividend payments -- will increase as the Canadian dollar rises. |
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Capture Dividend Yields of up to 13.3%
Canada is an exceptional place for U.S. investors to seek
attractive opportunities.
It's also a
terrific source of high-yield investments.
Thanks to the nation's booming natural resources sector, Canadian
companies are now flush with cash, and they're returning a large
portion of that cash to shareholders in the form of solid dividend payments. In
fact, many Canadian firms now offer enticing dividend yields of
8%, 10% . . . even 12% or more.
With these points in mind, I recently added several high-quality
Canadian companies to my model portfolios, including an oil and
gas giant that controls one of Canada's largest oil sands
deposits, and pays an 11.6% dividend yield to boot. I also
featured a rock-solid Canadian energy firm that's paying even
greater dividends -- dishing out a 13.3% yield. And since
those dividends are doled out in Canadian dollars, U.S. investors are
likely to earn even more from their investment.
If you'd like to learn the names of these companies -- plus
receive a steady stream of foreign stocks, funds and other
investing ideas with abnormally high dividend yields each and
every month -- then I'd like to extend you a personal invitation
to try my premium international investing newsletter . . . High-Yield
International.
Visit
this link to learn more.
Thanks for joining me on my search for today's highest-yielding securities!
--
Nick Lanyi
Co-Editor
Global Dividend Opportunities
StreetAuthority LLC
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
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