Income investors disappointed by yields on U.S. stocks are looking outside America’s borders for bigger dividends. Emerging markets offer dividend opportunities, of course, but some investors consider them to be too risky. However, there is another market closer to home where growing dividends can be found. I’m talking about our northern neighbor, Canada.

Canada’s economy is growing faster than the U.S. economy. In fact, economists now expect Canada to lead all of the G7 countries in economic growth in the first half of 2011. Canada’s GDP grew 3.3% in 2010 compared with 2.9% for the United States. First-quarter 2011 growth was 4.2%, compared with just 1.8% in the U.S.

#-ad_banner-#Canada managed to avoid most of the U.S. housing meltdown and budget woes, so the country should benefit from rising exports as the U.S. recovery finally picks up steam. Exports are expected to grow 12% this year and 7% in 2012, according to Canada’s export credit agency. In addition, the Conservative Party’s victory in Canada’s May 2011 elections means current growth policies are likely to remain in place. 

Canada’s robust economy is fueling income gains and dividend hikes for Canadian stocks. At present, yields are much higher than for U.S. stocks. Canada’s TSX 60 Index yields 2.4%, well above the S&P 500’s 1.7% yield.

Buying Canadian stocks is easy. The larger discount brokers enable you to trade them just like they were on the New York Stock Exchange, but you should call your broker if you have questions.

Another factor U.S. investors need to think about is currency risk. Right now, the Canadian dollar trades above the U.S. dollar, but that could change if oil prices drop precipitously (since Canada is a major oil exporter). If that happens, then the value of your investment could fall even if the price of Canadian shares doesn’t change. However, if you are like me and expect oil prices to stay high, then risk is minimal and you could actually get more income.

Here are four of my favorite high-yielding Canadian stocks you should consider. To keep it simple, dollar amounts have been converted to U.S. currency.

1. Pengrowth Energy Corporation (NYSE: PGH)
Yield: 7%

Pengrowth Energy has controlling interests in more than 200 oil and gas projects and 2011 production averaging 75,000 barrels a day. At present, Pengrowth has about 860,000 acres of undeveloped land and operations that span the Western Canadian Sedimentary Basin in Alberta, British Columbia and Saskatchewan, Canada. The company plans to spend over $560 million on exploration and production activities this year.

Earnings dipped recently due to a pipeline rupture and wildfires in Alberta that temporarily slowed production. However, financial results should improve if oil and gas prices continue to rise in the coming years. Higher earnings should result in increased dividends. Pengrowth pays monthly dividends at a $0.86 annualized rate and yields 6.7%.

2. Provident Energy Ltd. (NYSE: PVX)
Yield: 6%

Provident owns natural gas pipelines, storage and processing facilities. The company mainly serves markets in central Canada and the eastern United States.

Provident recently increased its 2011 capital budget by 50% and will invest $108 million in new projects this year. This company also benefits from increasing production from the Montney and Marcellus natural gas plays, and the Alberta Oil Sands.

Provident pays dividends monthly at a $0.56 annualized rate. Based on the current dividend and share price, Provident yields 6.2%.
 
3. Calloway REIT (TSX: CWT.UN)
Yield: 6%

Calloway is a shopping mall real estate investment trust (REIT) that operates 130 shopping centers and 24.2 million square feet of leasable space across Canada. The company is Wal-Mart’s (NYSE: WMT) largest landlord in Canada and counts Best Buy (NYSE: BBY) and Staples (Nasdaq: SPLS) among its largest tenants.

Calloway owns modern, high quality centers and enjoyed 99% occupancy last year.  In April, the company raised $119 million, which it plans to use for acquisitions. Calloway generated funds from operations (FFO) of $1.70 per share in 2010 and paid $1.60 in distributions. Dividends are paid monthly at a $1.60 annualized rate and these shares yield 6.1%.

4. Artis REIT (TSX: AX.UN)
Yield: 8%

Artis is a diversified Canadian REIT that invests in office, industrial and retail properties in Western Canada and the United States. The company owns 148 properties and 14.8 million square feet of leasable space. The portfolio breakdown is roughly half industrial properties and half retail and office, with about one quarter of the properties located in the United States.
 
In the March quarter, Artis acquired $183 million of new properties in Minneapolis and Toronto. An $88 million financing closed in April will be used for more acquisitions. These deals should lead to increased rental income, which would then be used to pay an even higher dividend.

Artis boosted FFO by 30.3% last year to $1.24 per unit and paid out 90% of this as distributions. Dividends are paid monthly at an annualized rate of $1.11. Artis shares currently yield a rich 7.7%. 
 
Action to take–> My pick for aggressive investors is Pengrowth Energy, which has sizable undeveloped land holdings and upside tied to rising oil prices. Conservative investors may prefer high-yielding Artis REIT, which is well-diversified geographically and by property type.

P.S. — If you’re looking for quality stocks with high yields, you should take a look at this one. It pays a 19.2% dividend yield. It borrows cheap, gets paid handsomely and then pockets the spread. You’ll get the full story on this cash machine and others like it in this video.