I bought Sears Canada (TSX: SCC) about a year ago for around $17, for much of the same reasons described here. Recently, Sears announced that it is looking into strategic alternatives, including a possible sale of its financial services division. In response, the stock has strengthened considerably. I have sold my entire position, as Sears will now be left with a weak merchandising franchise and a lot of value in the stock has been realized.

With the proceeds, I am investing in a high-dividend paying financial company: AGF Management Inc. (TSX: AGF.NV). AGF is a well-known mutual fund and wealth management company with $32 billion in assets under management. However, AGF has been operating under a very challenging environment, with the trend of negative net sales (new sales less redemptions) continuing in 2005. Partly, the negative trend is due to strong demand for high-yield products, where AGF’s offerings have been traditionally weak. The company has introduced new income-generating funds.

On the positive side, the company is a strong cash-flow generator, has strong brand recognition, earned $0.85 per share in 2004 and pays an annual dividend of $0.60. I believe AGF has the potential to deliver strong total returns over the long-term.

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