The document discusses the recovery of the U.S. housing market and economy over the past few years after the financial crisis. It also notes that Cardinal's U.S. portfolios have performed well, returning about 11% over the past year compared to a 13.2% gain in the S&P 500, due to strong growth in several large U.S. companies in Cardinal's portfolios. The document also provides an overview of Royal Bank of Canada, noting its market position, earnings growth, dividend increases, and recent acquisitions.

1. december 2012
cardinal
update
Dividend Increases
Vermilion Energy Inc.
(During the period: November 1 – 30, 2012)
5.3%
Rebuilding – U.S. Housing, COMPANY FOCUS
Balance Sheets, Markets Royal Bank of Canada
A couple of the most encouraging developments that we have seen in recent months are
the resurgence of the U.S. economy and the U.S. equity market over the last few years. After RBC is the largest Canadian bank by market
the massive blow that U.S. homeowners took from the burst of the housing bubble, and U.S. capitalization at over $84 billion. The company
investors took because of the financial crisis, personal balance sheets are being rebuilt. The has strong market positions in a diversity of
housing sector is recovering nicely and consumer activity, as demonstrated by retail and segments, including Canadian banking, wealth
automotive sales, is edging upwards. U.S. GDP growth has been positive for two years and management, insurance, treasury services, and
has actually been revised upwards in recent months. Looking at Cardinal’s position for capital markets. This strong earnings profile
clients with U.S. portfolios it is gratifying to see that we can access world-class technology, helped the bank realize record net income
health-care, industrial and consumer product companies that are just not available in to common shareholders in fiscal 2012 of
Canada, especially at the high quality level that Cardinal insists on. Companies like IBM, $7,184 million of which $3,291 million was
Stryker, Honeywell, Heinz and Kellogg are great global companies. In our Canadian distributed in common dividends (or 46% of
portfolios it has been great to see 15 companies increase their dividends by an average earnings). On a per share basis, the growth
of just over 11% this year. In the U.S. portfolio we have seen 18 companies increase the in earnings allowed the bank to increase its
dividend by a sizzling average of 25.5% (boosted by Cisco with increases totaling 133%). dividend twice in fiscal 2012 from 54 cents/share
In the twelve months ended November 30th the S&P500 was up a respectable 13.2% and to 60 cents/share (a total increase of 11%),
our U.S. portfolios were up about 11%. representing a 4.1% yield.
We all know that Cardinal does not manage portfolios with a goal of “beating the index”; Also in fiscal 2012, RBC completed the sale of its
instead we concentrate on the ownership of quality companies. However, in six of the last fledging U.S. retail banking operations to PNC
ten years (ending September 30th) Cardinal has outperformed the S&P500. In the last year Financial Services for $3.6 billion and announced
we have seen something unusual for the S&P500. Canadians will remember the Nortel major acquisitions of the remaining stake in
effect during the tech bubble of the 1990s where the Index surged because of massive price RBC Investor Services (formerly RBC Dexia)
increases for Nortel which at one point approached 25% of the entire Index. In the U.S. this for $1.1 billion, and the Canadian auto financing
year we have seen an echo of that with the “Apple effect” While the S&P500 is up 13.2%,
. operations of Ally Financial for a net investment
Apple has surged over 54% and now represents over 4% of the Index. Without the Apple of $1.4 billion. This move to replace the loss
effect, the Cardinal U.S. portfolio and the S&P500 are about ‘neck-and-neck’ Of course, we
. generating U.S. operation with two stable earning
do not apologize for not owning Apple, since it does not fit the mould of a “Cardinal” stock, franchises will help to provide additional options
being far too volatile and unpredictable for us to expose client wealth(and it doesn’t pay for earnings for growth in future years.
regular dividends). But our conservative style obviously works in the U.S. market and we Unless otherwise noted, the source of all data in this Update is Bloomberg and Cardinal research. This
hope that once investors have established a solid position in a Canadian portfolio, they will Update is prepared for general informational purposes only. Statements about future performance may not
be realized and past performance is not a guarantee of future performance. Cardinal does not guarantee
consider expanding their horizons to include our neighbor to the South. the accuracy or completeness of the information contained herein, nor does Cardinal assume any liability
for any loss that may result from the reliance by any person upon any such information or opinions. The
information and opinions contained herein are subject to change without notice.
© 2012, Cardinal Capital Management, Inc.
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