Although I have always felt obligated to report my monthly transactions here so as to hold myself accountable and clearly identify my investment holdings, I question the value add to my readers of reporting this information. Similarly, as helpful as I find it to have a watchlist heading a new month in order to focus my attention on a handful of companies, I wonder how my list of prospective companies is of any great importance to a reader. Therefore, in an effort to maximize my efficiency blogging, while halving the number of potentially useless entries for you to read, my experiment this month is to combine these two entries.
December Transactions
Buy #1 - Enercare Inc. (TSE: ECI)
After initiating a half-position in Enercare last month, I added more shares on the first of December that resulted in an "almost-full position" in my unregistered account. I was able to bring my average cost down on this Canadian company that is successfully integrating a US acquisition that should provide further stability to their cashflows gained from renting, servicing, and selling hot water tanks and air conditioning units. With a dividend yield over 5% and having grown their dividend by 10% early last summer, I remain open to adding more shares of this company as indicated below in my January 2017 watchlist.
Buy #2 - Life Storage Inc. (NYSE: LSI)
Although the selloff in US REITs that I anticipated after the federal reserve bank increased rates by 25 basis points never materially to the extent I hoped, I was able to add a couple more shares to my position in Life Storage at a 7% discount to my initial purchase price. With a P/FFO of approximately 19X, Life Storage is one of the more reasonably priced REITs in the self-storage space. The December 21st purchase completed my position in this company.
Donation - RioCan REIT (TSE: REI.UN)
Effective December 23rd, I made a donation of some of my RioCan shares to Food Banks Canada. By donating some shares of RioCan from my unregistered account, I accomplished four objectives:
1. Supported a worthy cause that I care deeply about.
2. Avoided paying a capital gain on shares on which I could not have accurately calculated my adjusted cost base due to shotty record keeping in my early investing days (the early 2000s).
3. Lowered my 2016 tax bill via a donation to a registered charity and my future tax bills due to the higher taxation of REIT distributions vs dividends.
4. Started to decrease my position in a company whose management seems more interested in empire building than acting in the best interest of their shareholders.
January 2017 Watchlist
I remain very open to adding to my investments in Enercare Inc. (TSE: ECI) and Emera Inc. (TSE: EMA) in my unregistered account. Some of the reasons I enjoy Enercare are outlined in my justification of my recent buy, and I will add that I would like to close my position in the company before pausing to consider if I would choose to go overweight. Emera is interesting to me since it provides additionally exposure to the utility sector at a fair P/E multiple of ~18X. Although I'm not crazy about their recent $300M+ secondary issue, I realize that they need to fund an aggressive capital investing schedule while keeping their targeted capital structure in place.
Part of my 2017 contribution to my tax-free savings account (TFSA) will be used to complete my position in Canadian Apartment Properties REIT (TSE: CAR.UN). Holding this REIT in my TFSA allows me to be a passive landlord in a growing portfolio of apartment rentals across Canada and collect monthly distributions tax-free equaling approximately 4% per year. Although I would like to add to my position in Toronto-Dominion Bank (TSE: TD) with another part of my 2017 TFSA contribution, I'm not crazy about paying a 52-week high price for this bank. I'll likely hold-off and wait for a chance to pick it up on a dip.
With the excess cash inside my RRSP, I would consider adding to my position in the Keg Royalties Income Fund (TSE: KEG.UN). Their three cent per share special dividend in December further demonstrates to me that unlike at RioCan, management of the Keg Royalties Income Fund takes their duty seriously to act in the best interest of the shareholders. Since I have yet to formally mention it in a watchlist, I am also interested in Brookfield Infrastructure Partners (TSE: BIP.UN) for possible investment in my TFSA or RRSP. I think the Brookfield empire is exceptionally well-managed, I would enjoy adding exposure in the infrastructure space for diversification purposes, and BIP tends to overachieve their dividend growth guidance of 8% per year. That said, I have a difficult time estimating a fair price for this company and find it frustrating that every time shares inch toward a 4% distribution yield, they inevitably bounce up 10% before I have sufficient conviction to act. BIP could very well end up in my "too complicated" pile of discarded opportunities.
My investment holdings page has been updated to reflect my three December transactions and I will keep it updated until my next transaction/watchlist entry. Since this will likely be my last post for 2016, I wanted to wish everyone a restful holiday season and a prosperous 2017!
What stocks are you considering heading into 2017???
Tuesday, December 27, 2016
Monday, December 19, 2016
44 Years of Dividend Growth - Canadian Utilities Limited
Since I have been struggling to find ideas for posts lately, I decided to dig deeper on individual companies on the Canadian Dividend All-Star list, the best source to identify quality Canadian companies with at least a five year history of growing their dividends. Since most dividend bloggers overwhelm me with their financial analysis, my plan is to take it light on the numbers while focusing on the qualitative factors that might make the company an attractive or unattractive addition to your investment portfolio. Being a logical thinker, I will start at the top of the Canadian Dividend All-Star list, with Canadian Utilities Limited, the owner of the longest annual streak of dividend raises at 44 years.
Company Overview
A subsidiary of ATCO Ltd., Canadian Utilities' operations consist of their electricity segment (~55% of total revenues) and their pipelines and liquids segment (~45% of total revenue). Both segments include regulated and non-regulated businesses. Although the company's assets and operations are mostly centered in the Canadian province of Alberta, there is growing geographical diversification with investments in Australia and Mexico internationally, and Yukon, the Northwest Territories, and Saskatchewan in Canada.
Dividends
After announcing a 10.2% dividend increase in October 2016, the company's dividend yield is currently ~3.5%. The earnings payout ratio is high at 87% of the trailing 12 months EPS. The 3, 5, and 10 year dividend growth rates are impressive at 10.1%, 9.3%, and 7.9% respectively.
Valuation
A recent rally in Canadian Utilities' share price has lead to a trailing P/E of 24X. This value is relatively high given the stock has traded in the 18-22X range for most of the past 5 years. Looking at EV/EBITA leads to a similar conclusion, with the company currently trading at 13.5X in contrast with their 5-year average in the 9-12X range.
Qualitative Catalysts
There are some obvious reasons why you would consider adding Canadian Utilities to your investment portfolio
1. Stable Cashflows from Regulated Businesses
- Reviewing the last 5-years of Canadian Utilities financial statements shows that the company benefits from the regulated nature of some of their business segments. There are no wild swings in revenue or profitability that tends to keep investors awake at nights.
2. The Dividend Streak
- As a dividend investor, you should seek out companies with management who is not only committed to sharing their profits with you, but who realize the importance of raising their payouts over time in-line with business results. With the longest annual streak of dividend increases of any Canadian company, the pressure is on Canadian Utilities' management to keep the streak alive.
3. Capital Investments to Grow Earnings
- Canadian Utilities plans to invest $1.5B in growth projects in 2016, $2.8B in 2017, and $1.8B in 2018. Given the company's net profit margin of 11% and ROA of 3% in 2015, the success of these capital projects should enable management to continue to deliver higher dividends to their shareholders.
Qualitative Drawbacks
Beyond the fact that the current valuation of the company's shares seems steep, and that the payout ratio is high even for a utility company, there are some additional drawbacks for investors to consider before adding Canadian Utilities to their investment portfolio.
1. Financing Needed for CAPEX
- With Canadian Utilities aggressive capital expenditure program over the next 3 years, the company will need to continue to access the debt and capital markets. This financing will result in higher leverage and shareholder dilution. In order to fund their $1.5B of CAPEX in 2015, the company issued $650M of additional debt, issued preferred shares of $375M, and used some of their of CFO to make up the difference.
2. High Exposure to Alberta Economy / Oil Prices
- Although I couldn't find exactly how much of the company's revenues and earnings relate to Alberta, I feel very comfortable indicating that the company's results are heavily dependent on the strength of the Alberta economy. Given Alberta's economy tends to move in sequence with the price of oil, it's not a stretch to speak of the high correlation between Canadian Utilities' results and the price of oil.
3. Regulatory Risk
- Being involved in regulated businesses entails the risk that future regulatory decisions outside of the company's control could materially impact Canadian Utilities' operations and results. For instance, the Alberta government would be politically ignorant to allow the company to increase their electricity rates by double digits during a difficult period in the province. At the federal level, as the Canadian government pushes programs to decrease carbon emissions, Canadian Utilities will need to adapt in order to remain compliant and relevant.
Conclusions
Most Canadian dividend growth investors have at least one utility in their investment portfolio. Although it might be tempting to include Canadian Utilities in your portfolio due to their 44 year streak of raising their dividend and the recent 10.2% dividend increase, I would caution that there will likely be a better time to add the company to your holdings. Given the relatively high current valuation, 87% payout ratio, and aggressive capital program over the next 3 years, there are better candidates to buy at the moment.
What would make you consider adding shares of Canadian Utilities to your portfolio?
Company Overview
A subsidiary of ATCO Ltd., Canadian Utilities' operations consist of their electricity segment (~55% of total revenues) and their pipelines and liquids segment (~45% of total revenue). Both segments include regulated and non-regulated businesses. Although the company's assets and operations are mostly centered in the Canadian province of Alberta, there is growing geographical diversification with investments in Australia and Mexico internationally, and Yukon, the Northwest Territories, and Saskatchewan in Canada.
Dividends
After announcing a 10.2% dividend increase in October 2016, the company's dividend yield is currently ~3.5%. The earnings payout ratio is high at 87% of the trailing 12 months EPS. The 3, 5, and 10 year dividend growth rates are impressive at 10.1%, 9.3%, and 7.9% respectively.
Valuation
A recent rally in Canadian Utilities' share price has lead to a trailing P/E of 24X. This value is relatively high given the stock has traded in the 18-22X range for most of the past 5 years. Looking at EV/EBITA leads to a similar conclusion, with the company currently trading at 13.5X in contrast with their 5-year average in the 9-12X range.
Qualitative Catalysts
There are some obvious reasons why you would consider adding Canadian Utilities to your investment portfolio
1. Stable Cashflows from Regulated Businesses
- Reviewing the last 5-years of Canadian Utilities financial statements shows that the company benefits from the regulated nature of some of their business segments. There are no wild swings in revenue or profitability that tends to keep investors awake at nights.
2. The Dividend Streak
- As a dividend investor, you should seek out companies with management who is not only committed to sharing their profits with you, but who realize the importance of raising their payouts over time in-line with business results. With the longest annual streak of dividend increases of any Canadian company, the pressure is on Canadian Utilities' management to keep the streak alive.
3. Capital Investments to Grow Earnings
- Canadian Utilities plans to invest $1.5B in growth projects in 2016, $2.8B in 2017, and $1.8B in 2018. Given the company's net profit margin of 11% and ROA of 3% in 2015, the success of these capital projects should enable management to continue to deliver higher dividends to their shareholders.
Qualitative Drawbacks
Beyond the fact that the current valuation of the company's shares seems steep, and that the payout ratio is high even for a utility company, there are some additional drawbacks for investors to consider before adding Canadian Utilities to their investment portfolio.
1. Financing Needed for CAPEX
- With Canadian Utilities aggressive capital expenditure program over the next 3 years, the company will need to continue to access the debt and capital markets. This financing will result in higher leverage and shareholder dilution. In order to fund their $1.5B of CAPEX in 2015, the company issued $650M of additional debt, issued preferred shares of $375M, and used some of their of CFO to make up the difference.
2. High Exposure to Alberta Economy / Oil Prices
- Although I couldn't find exactly how much of the company's revenues and earnings relate to Alberta, I feel very comfortable indicating that the company's results are heavily dependent on the strength of the Alberta economy. Given Alberta's economy tends to move in sequence with the price of oil, it's not a stretch to speak of the high correlation between Canadian Utilities' results and the price of oil.
3. Regulatory Risk
- Being involved in regulated businesses entails the risk that future regulatory decisions outside of the company's control could materially impact Canadian Utilities' operations and results. For instance, the Alberta government would be politically ignorant to allow the company to increase their electricity rates by double digits during a difficult period in the province. At the federal level, as the Canadian government pushes programs to decrease carbon emissions, Canadian Utilities will need to adapt in order to remain compliant and relevant.
Conclusions
Most Canadian dividend growth investors have at least one utility in their investment portfolio. Although it might be tempting to include Canadian Utilities in your portfolio due to their 44 year streak of raising their dividend and the recent 10.2% dividend increase, I would caution that there will likely be a better time to add the company to your holdings. Given the relatively high current valuation, 87% payout ratio, and aggressive capital program over the next 3 years, there are better candidates to buy at the moment.
What would make you consider adding shares of Canadian Utilities to your portfolio?
Monday, December 12, 2016
Goals for 2016 - Year End Assessment
"A goal without a plan is just a wish"
- Antoine de Saint-Exupery
Back on January 25th of this year, I shared my 2016 goals. Although there are a couple weeks left in 2016, I'm comfortable performing my year end assessment now as I'm trying to gear down heading into the holiday season. My goals fell into the three broad categories outlined below and contained the bullet point tactical plans which would allow me to measure my progress. My self-assessment is included in italics and expanded on via the three paragraphs.
Increase Passive Income by 25% => Fail*
- Make regular contributions to my investment accounts representing approximately 50% of my take-home pay => 100% achieved
- Maximize my investments in tax preferred accounts (i.e. RRSP, TFSA, RESP) => 100% achieved
- Achieve a weighted average dividend growth for my total portfolio of 5% => Sitting at 5.13% with 3 increases (ENB, ENF, PFE) expected by year end
- Avoid dividend cuts => Achieved with 14 business days left this year *knock on wood* I feel like the below plan helped me avoid dividend cuts.
- Do NOT add to any holdings that have not raised their dividend in the past 12-months => Proud to have stuck to this plan
- Add an additional source of passive income beyond dividend stocks => Failed miserably
- Limit short-term trades to a maximum of one per month => Only 7 short-term trades so far this year!
- Make regular contributions to my investment accounts representing approximately 50% of my take-home pay => 100% achieved
- Maximize my investments in tax preferred accounts (i.e. RRSP, TFSA, RESP) => 100% achieved
- Achieve a weighted average dividend growth for my total portfolio of 5% => Sitting at 5.13% with 3 increases (ENB, ENF, PFE) expected by year end
- Avoid dividend cuts => Achieved with 14 business days left this year *knock on wood* I feel like the below plan helped me avoid dividend cuts.
- Do NOT add to any holdings that have not raised their dividend in the past 12-months => Proud to have stuck to this plan
- Add an additional source of passive income beyond dividend stocks => Failed miserably
- Limit short-term trades to a maximum of one per month => Only 7 short-term trades so far this year!
* Currently sitting at higher forward expected dividend income of ~17% and don't expect to reach 25% (or even 20%) by year-end. Two big reasons for this are that my largest holding (Alaris Royalty) did not raise their dividend in 2016, and the fact that I added a bunch of US stock holdings in my RRSP and only count the dividend income at a 1:1 USD to CAD ratio. Still very proud of raising my expected dividend income by ~17% and realize how hard it will be to see large raises in the future as the figures grow at a much quicker pace than my income/portfolio contributions.
Understand Where My Money is Being Spent => Pass*
- Track large variable expenses such as costs associated with my car, gifts, work, taxes, sports, cottage, and anything appearing on my personal credit card => Probably overdid this via a detailed spreadsheet
- Save at least $1000 this year on variable expenses => Achieved ($240 haircuts, $325 snow removal expense, $50 banking fees, $80 faucet installation, $400 gifts)
- Continue to make investments that decrease expenses over time (i.e. tools for changing the tires of our cars, hair cutting equipment, etc.) => Achieved (mainly due to swapping air conditioner for thermo pump that is saving large amounts of natural gas consumption)
- In-line with the above goal, get the roof of my cottage repaired => Epic fail
Understand Where My Money is Being Spent => Pass*
- Track large variable expenses such as costs associated with my car, gifts, work, taxes, sports, cottage, and anything appearing on my personal credit card => Probably overdid this via a detailed spreadsheet
- Save at least $1000 this year on variable expenses => Achieved ($240 haircuts, $325 snow removal expense, $50 banking fees, $80 faucet installation, $400 gifts)
- Continue to make investments that decrease expenses over time (i.e. tools for changing the tires of our cars, hair cutting equipment, etc.) => Achieved (mainly due to swapping air conditioner for thermo pump that is saving large amounts of natural gas consumption)
- In-line with the above goal, get the roof of my cottage repaired => Epic fail
* Very proud of my detailed expense tracking spreadsheet, although I'm unlikely to keep similar records in 2017. Planning on learning how to change my oil/filters in our cars in 2017, and finally getting the cottage roof repaired (or doing it myself).
Personal Improvement => Fail*
- Visit a dentist, optometrist, and doctor this year; although this might seem like a very basic goal, it has been 10+ years, 2 years, and 5+ years respectively since I have visited these professionals => 2/3 (dentist and optometrist)
- Write at least 52 blog entries this year while focusing on quality (i.e. no filler entries) => This is entry 46 and its unlikely I have 6 more quality entries in me this year.
- Complete at least five workouts every week => Fail, although I'm doing decent averaging 10,000 steps a day over the last month.
- Run a 5km, 10km, and half-marathon in 2016 => Fail again. Decided I'd keep running fun instead of pushing myself to race.
- Take my wife on at least one weekend getaway => Finally a pass! Spent a nice weekend in Kingston last spring :)
- Be mentally present and focused when spending time with my son => Of all my misses this year, this one makes me the saddest. Can't honestly say I'm mentally present and focused 100% of the time :(
- Continue money/personal improvement experiments (i.e. developing a new skill in 20 hours) => Semi-pass due to my efforts to make people's days better if it can be accomplished by spending $20 or less.
- Identify three areas/jobs at my company that interest me and talk to employees in these areas => Had two interviews in different areas of my company, and did talk to someone about a third area...unintentional pass!
- Complete at least one personal development course relating to my profession => Semi-pass: Passed my oral French exam, which doesn't relate to my profession, but does set me up nicely for future opportunities
- Make meaningful donations of time, money, and stock to causes that I feel passionate about => Made meaning money and stock donations. Did volunteer at a youth ultimate clinic...does that count?
Personal Improvement => Fail*
- Visit a dentist, optometrist, and doctor this year; although this might seem like a very basic goal, it has been 10+ years, 2 years, and 5+ years respectively since I have visited these professionals => 2/3 (dentist and optometrist)
- Write at least 52 blog entries this year while focusing on quality (i.e. no filler entries) => This is entry 46 and its unlikely I have 6 more quality entries in me this year.
- Complete at least five workouts every week => Fail, although I'm doing decent averaging 10,000 steps a day over the last month.
- Run a 5km, 10km, and half-marathon in 2016 => Fail again. Decided I'd keep running fun instead of pushing myself to race.
- Take my wife on at least one weekend getaway => Finally a pass! Spent a nice weekend in Kingston last spring :)
- Be mentally present and focused when spending time with my son => Of all my misses this year, this one makes me the saddest. Can't honestly say I'm mentally present and focused 100% of the time :(
- Continue money/personal improvement experiments (i.e. developing a new skill in 20 hours) => Semi-pass due to my efforts to make people's days better if it can be accomplished by spending $20 or less.
- Identify three areas/jobs at my company that interest me and talk to employees in these areas => Had two interviews in different areas of my company, and did talk to someone about a third area...unintentional pass!
- Complete at least one personal development course relating to my profession => Semi-pass: Passed my oral French exam, which doesn't relate to my profession, but does set me up nicely for future opportunities
- Make meaningful donations of time, money, and stock to causes that I feel passionate about => Made meaning money and stock donations. Did volunteer at a youth ultimate clinic...does that count?
* Felt like I was all over the map on "personal improvement" in 2016 without any specific focus or conviction. I either have to break this up into more than one area, or cut down the number of things I try to achieve in 2017.
Unlike in 2015, where I attained all my financial and non-financial goals, success was harder to come by this year. As alluded to above, I feel like focusing on several key areas instead of a bunch of unrelated, not terribly important initiatives will be key in 2017. I have some ideas of what I'd like to accomplish with my investing in 2017, but need to narrow down what else to focus on.
Unlike in 2015, where I attained all my financial and non-financial goals, success was harder to come by this year. As alluded to above, I feel like focusing on several key areas instead of a bunch of unrelated, not terribly important initiatives will be key in 2017. I have some ideas of what I'd like to accomplish with my investing in 2017, but need to narrow down what else to focus on.
Did you achieve your financial and non-financial goals in 2016? If it's too early to conclude, how are you tracking against your objectives?
Tuesday, November 29, 2016
November Transactions - 2 Buys and 1 Sale
November further proved my tendency to conduct bunched buying and sporadic selling as I made two buys and one sale within the same week (November 7th - 11th). Before long-time readers question if I have changed my investment thesis on Alaris Royalty, as explained below, I merely trimmed my position inside of my RRSP to overweight from extremely overweight.
Buy #1 - Keg Royalties Income Fund (TSE: KEG.UN)
After flirting with the Keg Royalties Income Fund by buying and selling shares for a quick profit on September 30th, I made the commitment to initiate a half position in KEG.UN on November 7th. Among the reasons I purchased shares in the Keg for the long-term are the two dividend raises and special dividend within the last 12 months, the attractive 5.5% initial yield, and the fact I thoroughly enjoy eating at their restaurants. I also feel my investment in the Keg provides some diversification to my holdings of the A&W Revenue Royalties Income Fund and McDonald's Corporation as the Keg is more of an upscale establishment.
Buy #2 - Enercare Inc. (TSE: ECI)
As I let slip in my recent post 11 Canadian Dividend All-Stars with 10%+ Dividend Growth, I deployed some capital in my unregistered account on November 11th to initiate a half-position in Enercare Inc. After looking through their Q3 results released on November 10th, I noted their integration of Service Experts in the US was proceeding well and that their free cashflow remained strong. Having experienced some HVAC issues over the summer, I have first hand experience with Enercare's highly profitable and dependable business model (renting, servicing, and selling hot water tanks and air conditioning units in Canada and the US). I was completely comfortable initiating my position at a 5% yield for this monthly dividend payer that grew their dividend by 10% in 2016.
Sale #1 - Alaris Royalty (TSE: AD)
On November 8th, I sold some shares of Alaris Royalty in my RRSP in order to trim my position from extremely overweight to merely overweight. Depending on the day, Alaris is still my largest position, although Telus is a frequent challenger. One of the main reasons I am planning to slowly trim my position in Alaris within my RRSP is to free up cash to take advantage of what I hope will be a large sell-off in US REITs when the Federal Reserve increases the interest rate in December. The other key reason is that I am trying to diversify my holdings so that one position doesn't account for a disproportionately large amount of my dividend income. Despite some recent difficulties with a few of their partner companies, Alaris still remains one of my favorite holdings due to the diversification it provides me (~15 partner companies in various sectors throughout North America), a management team that has a history of delivering strong results including impressive dividend growth, and a business model that sees it receive returns in the 15% range from partners in contrast to its 5-8% cost of capital.
My investment holdings page has been updated to reflect my three November transactions. If I was to venture a guess, I think December will likely see a similar level of activity for me as I look to deploy some capital in my unregistered account and anxiously await a sale on US REITs in the event of a rate hike.
What transactions did you undertake in November???
Buy #1 - Keg Royalties Income Fund (TSE: KEG.UN)
After flirting with the Keg Royalties Income Fund by buying and selling shares for a quick profit on September 30th, I made the commitment to initiate a half position in KEG.UN on November 7th. Among the reasons I purchased shares in the Keg for the long-term are the two dividend raises and special dividend within the last 12 months, the attractive 5.5% initial yield, and the fact I thoroughly enjoy eating at their restaurants. I also feel my investment in the Keg provides some diversification to my holdings of the A&W Revenue Royalties Income Fund and McDonald's Corporation as the Keg is more of an upscale establishment.
Buy #2 - Enercare Inc. (TSE: ECI)
As I let slip in my recent post 11 Canadian Dividend All-Stars with 10%+ Dividend Growth, I deployed some capital in my unregistered account on November 11th to initiate a half-position in Enercare Inc. After looking through their Q3 results released on November 10th, I noted their integration of Service Experts in the US was proceeding well and that their free cashflow remained strong. Having experienced some HVAC issues over the summer, I have first hand experience with Enercare's highly profitable and dependable business model (renting, servicing, and selling hot water tanks and air conditioning units in Canada and the US). I was completely comfortable initiating my position at a 5% yield for this monthly dividend payer that grew their dividend by 10% in 2016.
Sale #1 - Alaris Royalty (TSE: AD)
On November 8th, I sold some shares of Alaris Royalty in my RRSP in order to trim my position from extremely overweight to merely overweight. Depending on the day, Alaris is still my largest position, although Telus is a frequent challenger. One of the main reasons I am planning to slowly trim my position in Alaris within my RRSP is to free up cash to take advantage of what I hope will be a large sell-off in US REITs when the Federal Reserve increases the interest rate in December. The other key reason is that I am trying to diversify my holdings so that one position doesn't account for a disproportionately large amount of my dividend income. Despite some recent difficulties with a few of their partner companies, Alaris still remains one of my favorite holdings due to the diversification it provides me (~15 partner companies in various sectors throughout North America), a management team that has a history of delivering strong results including impressive dividend growth, and a business model that sees it receive returns in the 15% range from partners in contrast to its 5-8% cost of capital.
My investment holdings page has been updated to reflect my three November transactions. If I was to venture a guess, I think December will likely see a similar level of activity for me as I look to deploy some capital in my unregistered account and anxiously await a sale on US REITs in the event of a rate hike.
What transactions did you undertake in November???
Friday, November 25, 2016
11 Canadian Dividend All-Stars with 10%+ Dividend Growth
One of my greatest challenges as a dividend growth investor is selecting companies that have a sustainable competitive advantage that allows them to grow their revenues and earnings in order to consistently deliver dividend growth. As my largest holding, Alaris Royalty, has proven this year, an impressive history of dividend growth does not eliminate the probability of going through difficult times that impair a company’s ability to grow their payout.
With that in mind, I thought it would be beneficial to look at the Canadian dividend all-stars with at least a 5 year history of increasing their payouts, to see which companies increased their dividend by double digits over the past 12-months. Given my investment philosophy of focusing on companies with at least a 3% dividend yield, I narrowed down the results by adding that minimum yield filter. For those wondering why 3%, I feel that it compensates for inflation while removing companies whose management might not consider it important to return a meaningful percentage of their profits to shareholders. The resulting screen yielded 11 companies, including two that I eliminated as potential holdings due to factors outlined below.
One company I quickly excluded was Pason Systems Inc. which provides data management systems to oil drilling rigs. A look at their last seven quarters of financials clearly demonstrates the company is having a difficult time adapting to the falling price of oil and decreased drilling activity in Canada. Given the negative payout percentage and TTM P/E multiple, this company could easily be cast aside as too difficult to further analyze. Likewise, with a a 228% payout ratio and 55X P/E multiple, Nevsun, a mining and exploration company, does not strike me as a candidate for further research.
Gluskin Sheff, a provider of wealth management services to high income individuals and institutions is an intriguing organization. Not only has their regular quarterly dividend grew steadily, they also pay a special dividend once a year. That said, I am a long-term pessimist for active wealth management firms given the structural shift toward passive investing.
My investment holdings include Enbridge Income Fund, Enercare (a recent purchase), Emera, and Enbridge Inc. I have owned Canadian Utilities in the past, but find the current P/E a tad high, especially when also taking their 87% payout ratio into consideration. Algonquin Power & Utilities has long peaked my interest, and with their share price about a dollar cheaper than it was on October 31st, it is definitely on my "future considerations" list.
Sadly for me, Evertz Technologies and Agrium both operate in industries outside of my circle of competence. Of the two, I find Evertz more appealing given the lower P/E, longer dividend growth streak, and less reliance on commodity prices outside of the firm's control. That said, there is definitely a customer risk given Evertz sells into the Canadian television broadcast and media industries, which are constantly in search of ways to cut costs in order to remain competitive.
Which of the 11 companies above interests you the most for potential investment?
Wednesday, November 16, 2016
The Canadian "TULF" Dividend Growth Portfolio
There was an interesting article in The Globe and Mail a couple weeks ago introducing readers to the Canadian "TULF" Dividend Growth Portfolio. Personal finance columnist Rob Carrick suggests readers follow the guidance of Tom Connolly when constructing a portfolio of quality Canadian dividend growth stocks. For those of you not familiar with Tom Connolly, he has published The Connolly Report investment newsletter since 1981 and is perhaps the best known dividend growth guru in Canada. Mr. Connolly suggests readers focus on telecoms (T), utilities (U), low-yielding dividend stocks with growth potential (L), and financials (F) to construct their Canadian "TULF" Dividend Growth Portfolio.
In order to ensure that the companies selected are of the highest quality, Tom instructs investors to limit themselves to the 75 dividend-paying stocks in the S&P/TSX dividend aristocrats index. Next Mr. Connolly suggests eliminating any “high yield” stock with a payout over 6% (currently 9 stocks are "high yield"). Lastly, cyclical stocks (i.e. energy and mining) are off the table as they are perceived to be too risky for a dividend investor (currently 17 stocks from energy and mining sectors).
By now you’re probably wondering which types of the remaining 49 companies meet all of Mr. Connolly’s criteria to include in the "TULF" portfolio. Here are some examples cited in the article:
Telecoms – BCE, Rogers and Telus
Utilities – Fortis, Emera and Canadian Utilities Ltd.
Low-yielders – Canadian National Railway Co. and Metro Inc.
Financials – The big 6 Canadian banks (RY, TD, BMO, BNS, CM and NA)
Granted, I’m likely not the target audience that Mr. Connolly is looking to attract to his newsletter by offering his advice is in the article, but I can quickly identify some rather serious drawbacks with his theory of dividend growth portfolio construction.
1. Lack of sector and geographical diversification
Once you’ve filled up your portfolio with telecoms (4 candidates), utilities (5 candidates), and financials (12 candidates), you're left trying to identify low-yielders with above average dividend growth potential in the 28 remaining companies. Since Mr. Connolly fails to define what he considers a low-yielding company, it's fair to focus on the lower yielding half of the 28 remaining companies in search of candidates that would provide above-average dividend growth and sector diversification.
Although a couple of the larger utility companies and financial firms that Tom recommends have exposure outside of Canada, limiting a portfolio to TULF companies would expose you heavily toward the small, resource-centered Canadian economy. Personally, I aim to keep at least 30% of my investment capital dedicated to international equities in order to provide better geographical diversification.
2. Identifying low-yielders who can and will grow their dividends quickly is difficult and not necessarily relevant
Accurately identifying low-yielders who can continue to grow their dividends at a fast rate for an extended period of time is as difficult as timing the market. These special types of companies are even harder to find in the small and often domestically focused Canadian market. Furthermore, I have yet to see a valid case made from a mathematical standpoint of why including low-yielders in a portfolio is necessary. Assuming you get very lucky and select a company currently yielding 1.0% that can grow dividends at 20% for 10 years, your yield on cost would grow to 6.2% at the end of the period. In contrast, if you pick a company currently yielding 5%, that grows their dividend by a paltry 2% over 10 years, you end up with the same yield on cost of 6.2%.
3. Energy vs Utility Companies?
While Mr. Connolly suggests removing cyclical stocks such as energy and mining companies, he goes onto say TransCanada (classified in the Energy sector) was the first stock he owned. I also find it odd he advises against including energy companies and yet dedicates a whole category for utilities. There are blurry lines and high correlations between energy and utility companies. For instance, Enbridge Inc is classified in the index as an Energy company which would make it ineligible for the TULF portfolio. However, living in Quebec, Enbridge is viewed as a utility company by its many natural gas customers who pay their monthly bill to Enbridge subsidiary Gazifere. By discounting an entire category of companies he deems to be cyclical, Mr. Connolly leaves the investor with an even smaller potential universe of companies from which to select.
Although there are some flaws with his advice, Mr. Connolly’s strategy of using high quality companies to form the base of a dividend growth portfolio is a good starting point. Like any investment strategy, it should be tailored to meet the needs of the individual investor, and not taken as gospel.
Does your portfolio include all of the TULF components?
Thursday, November 3, 2016
November 2016 Dividend Growth Stock Considerations
Although October started quickly for me as I initiated new positions in the A&W Revenue Royalties Income Fund, Emera Inc and Life Storage Inc, the remainder of the month was calm. Perhaps I was overwhelmed after three quick purchases, and became reluctant to start another round of bunched buying. As my cash positions continue to build in all three of my investment accounts, here are some companies that are especially interesting to me heading into November.
Canadian Companies:
After establishing a half-position in Emera Inc. (TSE: EMA) last month, I am already considering adding to my holding. Currently, Emera seems like a steal at a trailing 12-month P/E multiple of 14.5X, yielding 4.5%, and having announced a 10% dividend increase late last summer. With Q3 earnings slated to be announced on November 8th, I will be listening with anticipation for signals that it's time to increase my position in my only pure utility play.
Beside the revenue royalty shares in the Keg (TSE: KEG.UN) and Boston Pizza (TSE: BPF.UN), which I have covered in multiple past monthly watch lists, I am keeping an eye on Enercare Inc (TSE: ECI). This investment grade rated (BBB/Stable) provider of rented hot water tanks and HVAC services yields an attractive 4.8% (recently increased by 10%) and derives about a quarter of its revenue from the United States. My main stumbling block on Enercare is I am having a tricky time valuing it appropriately. Using a P/E or FFO measure indicate the shares are quite costly, but that might be due to a recent material acquisition that I am having a hard time accounting for in my cashflow forecasts.
United States Companies:
Canadian Companies:
After establishing a half-position in Emera Inc. (TSE: EMA) last month, I am already considering adding to my holding. Currently, Emera seems like a steal at a trailing 12-month P/E multiple of 14.5X, yielding 4.5%, and having announced a 10% dividend increase late last summer. With Q3 earnings slated to be announced on November 8th, I will be listening with anticipation for signals that it's time to increase my position in my only pure utility play.
Beside the revenue royalty shares in the Keg (TSE: KEG.UN) and Boston Pizza (TSE: BPF.UN), which I have covered in multiple past monthly watch lists, I am keeping an eye on Enercare Inc (TSE: ECI). This investment grade rated (BBB/Stable) provider of rented hot water tanks and HVAC services yields an attractive 4.8% (recently increased by 10%) and derives about a quarter of its revenue from the United States. My main stumbling block on Enercare is I am having a tricky time valuing it appropriately. Using a P/E or FFO measure indicate the shares are quite costly, but that might be due to a recent material acquisition that I am having a hard time accounting for in my cashflow forecasts.
United States Companies:
The recent sell-off in US REITs is fascinating to me. As a long-term investor, I question how a possible 0.25% hike in interest rates would cause a 10-25% drop in the value of a given REIT business model. Despite the Canadian dollar being at a year-long against the US dollar, if the US REIT markets continues its slump, I am very open to adding to any and all of my US REIT holdings. The most likely recipients of increased investments would be Life Storage Inc (NYSE: LSI) and Iron Mountain (NYSE: IRM). Although I love Realty Income (NYSE: O), it still seems pricey from a P/FFO perspective at its current price. As attractive as Omega Healthcare (NYSE: OHI) looks from a valuation perspective, I'm happy with the current size of my position and am not actively looking to add to it.
In terms of US companies which I do not currently own and would consider initiating small positions, Tanger (NYSE: SKT), Digital Realty Trust (NYSE: DLR) and AbbVie (NYSE: ABBV) are all entering very attractive valuation territory. Although it's unlikely I would initiate another position in a US stock before the end of the year, any sustained weakness in the above three names might provide the catalyst I need to seriously consider initiating a position.
In terms of US companies which I do not currently own and would consider initiating small positions, Tanger (NYSE: SKT), Digital Realty Trust (NYSE: DLR) and AbbVie (NYSE: ABBV) are all entering very attractive valuation territory. Although it's unlikely I would initiate another position in a US stock before the end of the year, any sustained weakness in the above three names might provide the catalyst I need to seriously consider initiating a position.
Instead of asking which stocks interesting you heading into November 2016, I'm particularly curious if there are any Canadian dividend growth stocks you are looking at closely given their current prices? Thanks in advance for sharing your ideas.
Friday, October 28, 2016
Update on My Passive Investing Experiment
In early May of 2016, I made my initial foray into passive investing by purchasing two ETFs in my son’s Registered Education Savings Program (“RESP”). My primary objective of undertaking this experiment was to determine if the often-cited benefits of passive investing (i.e. low time commitment, low cost, low maintenance, etc.) were realizable. Six months into the experiment, the benefits of passive investing are becoming evident and are causing me to question if I should expand the experiment.
Low Time Commitment
After initially suffering from analysis paralysis when trying to figure out which ETFs to buy for my son’s RESP, I finally decided on two: Vanguard FTSE Canada All Cap Index (VCN) and Vanguard FTSE All-World Ex Canada Index (VXC). The initial selection of ETFs was the only significant amount of time I spent on this experiment, and I feel it was time well invested.
Low Cost
One of the sole benefits offered by my brokerage is an offering of about 50 ETFs which can be bought and sold commission free. That said, VCN and VXC are not part of that list, and thus my two purchases cost me $20 in commissions, or 0.27% of the amount invested. The management expense ratios of VCN and VXC are 0.06% and 0.27% respectively.
Low Maintenance
Very proud to say that I have not spent any material amount of time maintaining my son’s RESP. Re-balancing the positions next year will likely only take a couple minutes. It helps for me to know that the largest positions of VCN (Royal Bank, TD Bank, and Bank of Nova Scotia) and VXC (Apple, Alphabet and Microsoft) are all companies with great management who are focused on the long-term.
Market Returns
Since purchasing VCN, the ETF has risen about 7% and paid dividends totaling an additional 1.2%. VXC has risen approximately 8.6% and paid dividends (less with-holding taxes) totaling an additional 0.9%. My son’s RESP is up a little over 9%, a very respectable short-term gain reflecting the continued bull market in North America, and decent performance in Europe (VXC holds a number of large European companies).
Downside
The main downside that I see so far in my passive investing experiment is that I am knowingly invested in some companies that I feel are expensive at this point in time. For example, Suncor represents 3.3% of the total holdings of VCN. There is no way I would choose to allocate 3.3% of my portfolio to a company with declining revenues, net losses for the past two years, worrying cash-burn and CEO who seems to be more concerned with empire building than focusing on his core assets.
Final Thoughts
Six months into my passive investing experiment, it seems to be a great success. That said, it has only been half a year, and I prefer to judge the success of my investing by assessing long-term returns. I will admit that I’m considering expanding the experiment to a portion of my non-registered account in 2017. The long-in-the tooth bull markets in North America and relative high weights of comparatively expensive companies are holding me back at the moment.
In your opinion, what are the disadvantages of passive investing?
Thursday, October 20, 2016
Financial Lessons from the Trailer Park Boys
The television show Trailer Park Boys ("TPB") is one of my guilty pleasures. For those of you who have never seen an episode, check it out on Netflix or hunt down some DVDs. Although the vulgar language, constant drug references and semi-offensive plot lines might not be your cup of tea, following the ridiculous misadventures of Julian, Ricky and Bubbles as they scheme to get rich while trying to stay out of jail is always good for a laugh. Having watched all ten seasons of TPB, here are some of the financial lessons I have learned from the three main characters: Julian, Ricky and Bubbles.
(Source: www.thecoast.ca )
Julian: Dream big, develop a plan and lead others to accomplish your goals
Without a doubt, Julian is the brains of the TPB gang. In season 2, Julian outlines his "Freedom 35" dream which he hopes to accomplish by selling drugs to prison guards. Ricky and Bubbles are quickly recruited to help Julian achieve his plan when he convinces them to buy into his "Freedom 35" vision. Even though season 2 ends up with the gang in jail, this doesn't stop Julian from continuing to shoot for the stars. He becomes part owner of the Sunnyvale trailer park where the TPB gang lives, he opens his own (illegal) bar, he renovates a hotel, and even successfully markets Sunnyvale as an all-inclusive (drug) vacation destination. Regardless of the multiple trips to jail and failed plans, Julian never stops dreaming big, and is shooting for "Freedom 45" at the start of season 10.
Ricky: Take action, focus on your strengths and don't care what others think of you
Although Ricky is NOT the brains of the TPB gang, he is a man of action who is not afraid to get his hands dirty. From being a janitor at a high school, to sleeping in a barn, to pulling safes out of walls with his bare hands, Ricky never hesitates to take action when it is needed. Often, when he is desperate for money, Ricky reverts back to focusing on his strength, which happens to be growing and producing high quality drugs. Ricky takes pleasure in his mastery of pharmaceuticals, even going so far as to pay expenses with hash coins in season 8. Another of Ricky's admirable qualities is his complete lack of regard for caring what others think of him. Forget keeping up with the Jonses, Ricky drives a beat down car with no doors, wears track pants everywhere, and often butchers common sayings by turning them into Rickyisms (i.e. "Can you give me a bit of credjudice?", "Crop of shit", "Don't judge a cover of a book by its look", etc.).
Bubbles: Hustle, be your own boss, and support your friends
Although his appearance might indicate otherwise, Bubbles is a full blown hustler! His side hustles have included re-selling shopping carts, the Kittyland cat daycare, a short-lived restaurant, and even manufacturing honey oil. The constant presence of Bubbles' side hustles indicates that he prefers to be his own boss instead of letting Julian and Ricky dictate his actions. Given Julian & Ricky's money making ideas usually involve illegal activities, Bubbles' entrepreneurism cuts down the risk of his landing back behind bars. Despite venturing out on his own, it's fair to say to Bubbles always supports his friends. Be it serving as a lender of last resort, providing entertainment with his guitar at Julian's bar, or publicizing the all-inclusive (drug) vacation destination that is Sunnyvale trailer park via the Internet, Bubbles is always there for his buddies.
Although none of the TPB gang have achieved financial independence, they have been extremely close multiple times due to the traits outlined above. More important than being independently wealthy is enjoying the journey, which Julian, Ricky, and Bubbles have mastered.
What is your guilty pleasure and what makes it great???
Although none of the TPB gang have achieved financial independence, they have been extremely close multiple times due to the traits outlined above. More important than being independently wealthy is enjoying the journey, which Julian, Ricky, and Bubbles have mastered.
What is your guilty pleasure and what makes it great???
Thursday, October 13, 2016
Bunched Buying & Sporadic Selling
My previous post outlining three recent buys triggered a sense of deja vu as I recalled writing a similarly titled post describing three buys in August. To investigate further, I examined a year of trade confirmation emails to determine the frequency with which I conduct transactions in my portfolio. In particular, I wondered if I bought and sold in condensed periods of time or if my transactions were spread evenly throughout the year. In order to eliminate the noise from my data, I removed all "short-term trades" (positions closed within a month). Here are the results:
The above results seem to indicate that I buy in bunches and sell sporadically. The four sales that were spread pretty evenly over the course of the year came as no surprise to me. Three sales related to re-balancing my portfolio to be more tax efficient, while the fourth was getting rid of half of my Corus position when I lost faith in the controlling owners (the Shaw family) after they conducted a transaction that was in their best interest, instead of that of the shareholders. The discovery of buying in bunches was eye-opening and caused me to contemplate why I might make series of buys together. Here are a couple of my theories:
1. Trying to Time the Market
Although it gets a horrible wrap from indexers and even dividend growth investors, I freely admit that I try to buy when prices are relatively low. For example, when the markets were weak in January 2016, I thought it was a great time to buy, but only had enough cash to make two purchases. More recently, as the US REIT market has pulled back, I took the opportunity to add shares in three US REITs. If the US federal reserve bank finally raises interest rates in December, I'll likely take advantage of the opportunity to pick up a couple of great US companies that will be on sale. Taking advantage of market uncertainty to buy shares in companies I intend to hold is part of my plan to becoming a successful investor.
2. The Adrenaline Rush of Buying
Have you ever noticed how amazing you feel when you invest your cash into a great company that you have thoroughly researched. For me, purchasing a stock provides an adrenaline rush, and I find myself looking to replicate that feeling. Although I'm fully aware that part of being a successful investor is controlling your emotions and acting in a rational manner, putting that knowledge into practice is a continuous struggle for me. When I have more data points to review, it will be interesting to look at the returns generated from a series of 2-4 stocks bought in close proximity. My bet is that the first security purchased will likely be the best performer.
3. Trying to Meet Performance Objectives
When reviewing my transactions, I was somewhat relieved see the lack of transactions in December 2015 and March 2016 as I measure my investment performance against a series of metrics each quarter. However, I think the absence of transactions in December 2015 were likely due to a lack of cash after the six buys in November 2015. Even now, as we enter the last quarter of 2016, I seem to be making a concerted effort to purchase shares in companies with higher dividend growth rates in order to move closer to my 5% dollar-weighted dividend growth target at year end 2016. Clearly, striving to achieve self-determined performance objectives should play a lesser role in my investment decisions.
Next year, one of my goals will be to make purchases at more regular intervals throughout the year in order to avoid bunched buying. Clearly, I have my work cut out for me in better managing my emotions when making purchases and avoiding letting my performance objectives impact my buying decisions.
What insights would you expect to learn from reviewing your investment transactions?
The above results seem to indicate that I buy in bunches and sell sporadically. The four sales that were spread pretty evenly over the course of the year came as no surprise to me. Three sales related to re-balancing my portfolio to be more tax efficient, while the fourth was getting rid of half of my Corus position when I lost faith in the controlling owners (the Shaw family) after they conducted a transaction that was in their best interest, instead of that of the shareholders. The discovery of buying in bunches was eye-opening and caused me to contemplate why I might make series of buys together. Here are a couple of my theories:
1. Trying to Time the Market
Although it gets a horrible wrap from indexers and even dividend growth investors, I freely admit that I try to buy when prices are relatively low. For example, when the markets were weak in January 2016, I thought it was a great time to buy, but only had enough cash to make two purchases. More recently, as the US REIT market has pulled back, I took the opportunity to add shares in three US REITs. If the US federal reserve bank finally raises interest rates in December, I'll likely take advantage of the opportunity to pick up a couple of great US companies that will be on sale. Taking advantage of market uncertainty to buy shares in companies I intend to hold is part of my plan to becoming a successful investor.
2. The Adrenaline Rush of Buying
Have you ever noticed how amazing you feel when you invest your cash into a great company that you have thoroughly researched. For me, purchasing a stock provides an adrenaline rush, and I find myself looking to replicate that feeling. Although I'm fully aware that part of being a successful investor is controlling your emotions and acting in a rational manner, putting that knowledge into practice is a continuous struggle for me. When I have more data points to review, it will be interesting to look at the returns generated from a series of 2-4 stocks bought in close proximity. My bet is that the first security purchased will likely be the best performer.
3. Trying to Meet Performance Objectives
When reviewing my transactions, I was somewhat relieved see the lack of transactions in December 2015 and March 2016 as I measure my investment performance against a series of metrics each quarter. However, I think the absence of transactions in December 2015 were likely due to a lack of cash after the six buys in November 2015. Even now, as we enter the last quarter of 2016, I seem to be making a concerted effort to purchase shares in companies with higher dividend growth rates in order to move closer to my 5% dollar-weighted dividend growth target at year end 2016. Clearly, striving to achieve self-determined performance objectives should play a lesser role in my investment decisions.
Next year, one of my goals will be to make purchases at more regular intervals throughout the year in order to avoid bunched buying. Clearly, I have my work cut out for me in better managing my emotions when making purchases and avoiding letting my performance objectives impact my buying decisions.
What insights would you expect to learn from reviewing your investment transactions?
Friday, October 7, 2016
Three Recent Buys - AW.UN, LSI and EMA
After reading about some of my fellow dividend bloggers taking money off the table, rethinking their choice of a dividend growth strategy, and waiting for better valuations...I went on a bit of a shopping spree over the past week. Don't get me wrong, I respect everyone's decisions to take a breather or try something different, but I'm sticking with what works for me: buying dividend growth stocks at fair valuations.
Buy 1 - A&W Revenue Royalties Income Fund (TSE: AW.UN)
After high-lighting A&W as one of the three Canadian restaurants with growing dividends that interested me the most and including it in my last couple monthly watch lists, I re-deployed the proceeds of my Royal Bank stock sale from inside my RRSP to this tasty royalty vehicle. With a 4.6% yield, 10% distribution growth over the last year, and some of the strongest same-store-sales growth of any Canadian restaurant, I was very attracted to this security. The fact I am also a big fan of their marketing, use of higher quality ingredients, and products (especially their onion rings) further pushed me toward this purchase. I'm not sure that this will be my last Canadian restaurant investment (see the final paragraph), but I'm happy to make it my first.
Buy 2 - Life Storage Inc. (NYSE: LSI)
My plan for my RRSP is to add US-traded REITs in sectors that are unavailable in Canada in order to provide further diversification within my investment holdings. Since there's this great sale on REITs lately, probably due to an expected US interest rate hike before the end of 2016, and valuations are becoming very attractive. I decided to initiate a position in self-storage company LSI as the company's revenue, FFO, and distribution growth over the past five years have all been impressive. The fact I was able to pick up my shares at a P/FFO valuation of about 16X enticed me to pull the trigger. I'm unsure if this will be the last US REIT I add to my RRSP before the end of the year, as WP Carey is becoming increasingly interesting due to their elevated international real estate exposure, relatively high yield (over 6%), and cheaper valuation relative to their peers.
Buy 3 - Emera Inc. (TSE: EMA)
Despite including it on my list of five Canadian utilities with growing dividends, Emera never jumped out at me until I looked at them recently and noticed their P/E had fallen below 15X. That relatively cheap historical valuation, combined with their 4.5% yield, 10% recent dividend hike, and management guidance of dividend growth of 8% through 2020 quickly bumped this company to the top of my mind. I used some spare funds in my non-registered account to initiate a position in this company on a recent dip, and I will likely add more before the end of the year.
Given my commitment to be honest with my readers, there was actually a fourth buy that I would have liked to include in the above list...but I sold it after 3 hours. Although I have cut back on short-term trading in recent quarters, on September the 30th, I picked up some shares in the Keg Restaurant (TSE: KEG.UN) at a great price, but then decided to sell after they rose to the point where I was able to collect a profit equal to six months worth of distributions. My thinking was that I would likely have a chance to repurchase the Keg units at some point over the next six months at a better price. At least that's my hope.
What companies are on your watch list this October?
Buy 1 - A&W Revenue Royalties Income Fund (TSE: AW.UN)
After high-lighting A&W as one of the three Canadian restaurants with growing dividends that interested me the most and including it in my last couple monthly watch lists, I re-deployed the proceeds of my Royal Bank stock sale from inside my RRSP to this tasty royalty vehicle. With a 4.6% yield, 10% distribution growth over the last year, and some of the strongest same-store-sales growth of any Canadian restaurant, I was very attracted to this security. The fact I am also a big fan of their marketing, use of higher quality ingredients, and products (especially their onion rings) further pushed me toward this purchase. I'm not sure that this will be my last Canadian restaurant investment (see the final paragraph), but I'm happy to make it my first.
Buy 2 - Life Storage Inc. (NYSE: LSI)
My plan for my RRSP is to add US-traded REITs in sectors that are unavailable in Canada in order to provide further diversification within my investment holdings. Since there's this great sale on REITs lately, probably due to an expected US interest rate hike before the end of 2016, and valuations are becoming very attractive. I decided to initiate a position in self-storage company LSI as the company's revenue, FFO, and distribution growth over the past five years have all been impressive. The fact I was able to pick up my shares at a P/FFO valuation of about 16X enticed me to pull the trigger. I'm unsure if this will be the last US REIT I add to my RRSP before the end of the year, as WP Carey is becoming increasingly interesting due to their elevated international real estate exposure, relatively high yield (over 6%), and cheaper valuation relative to their peers.
Buy 3 - Emera Inc. (TSE: EMA)
Despite including it on my list of five Canadian utilities with growing dividends, Emera never jumped out at me until I looked at them recently and noticed their P/E had fallen below 15X. That relatively cheap historical valuation, combined with their 4.5% yield, 10% recent dividend hike, and management guidance of dividend growth of 8% through 2020 quickly bumped this company to the top of my mind. I used some spare funds in my non-registered account to initiate a position in this company on a recent dip, and I will likely add more before the end of the year.
Given my commitment to be honest with my readers, there was actually a fourth buy that I would have liked to include in the above list...but I sold it after 3 hours. Although I have cut back on short-term trading in recent quarters, on September the 30th, I picked up some shares in the Keg Restaurant (TSE: KEG.UN) at a great price, but then decided to sell after they rose to the point where I was able to collect a profit equal to six months worth of distributions. My thinking was that I would likely have a chance to repurchase the Keg units at some point over the next six months at a better price. At least that's my hope.
What companies are on your watch list this October?
Thursday, September 29, 2016
Comparison of CIBC vs Royal Bank
As much as I try to hold a diversified portfolio or dividend growth stocks, I admit to having a fondness for Canadian banks. Owning shares in six of the largest seven banks in Canada, one might ask why I don't complete the collection and purchase shares in the Canadian Imperial Bank of Commerce ("CIBC"). For about 15 years before switching to Tangerine (a subsidiary of the Bank of Nova Scotia) last June, I was a CIBC banking customer, and didn't feel comfortable owning shares given my impression that CIBC was poorly run.
The other major reason I decided not to invest in CIBC was their propensity to be attached to every major financial scandal that arose. There was a $2.5B settlement relating to Enron, a $290M write-off of US subprime mortgage-backed securities, and allegations of not treating clients with respect/ethically. Personally, I experienced changes to the minimum balance rising from $1000 to $3000 required in my CIBC account before they would waive certain banking fees. Lately, I found myself scratching my head at CIBC's decision to be the first Canadian bank to offer negative yield bonds, thus ensuring investors would lose money over the long-term. All of the above-noted behaviors seem to point to the bank's desire to make a quick buck instead of focusing strategically on the long-term.
It is important to balance the qualitative factors outlined above with quantitative figures. To provide some context, CIBC is the fifth largest Canadian bank with $494B of assets at July 31, 2016. The below table compares CIBC to Royal Bank ("RY") which is the largest Canadian bank with $1.2T of assets at July 31, 2016. I chose Royal Bank as a baseline given its leading market position. My other reason for choosing Royal Bank is that I recently sold my RY position in my RRSP as I established a similar position in my unregistered account in January 2016. I was completely comfortable holding an overweight position in Royal Bank for nine months, and would need to feel the same comfort before investing in CIBC.
The below table outlines some valuation, dividend, growth, return, profitability, asset quality, and capitalization metrics that are worth considering when reviewing banks. The ratios below serve as a starting point for my bank analysis.
I found it interesting that despite having pretty similar return, profitability, asset quality and capitalization metrics, CIBC is priced at a ~20% discount compared to Royal Bank. The cheaper price relative to its last 12-months of earnings leads to CIBC currently yielding 70 basis points more than Royal Bank. CIBC has also grown its dividend much more aggressively over the past 12 months, and still has a lower payout ratio than Royal Bank. Although a deeper dive is warranted before making a purchase decision, the price discount of CIBC might be worth the trade off of the risk associated with CIBC landing in future headlines.
Would you invest in CIBC at its current price level?
The other major reason I decided not to invest in CIBC was their propensity to be attached to every major financial scandal that arose. There was a $2.5B settlement relating to Enron, a $290M write-off of US subprime mortgage-backed securities, and allegations of not treating clients with respect/ethically. Personally, I experienced changes to the minimum balance rising from $1000 to $3000 required in my CIBC account before they would waive certain banking fees. Lately, I found myself scratching my head at CIBC's decision to be the first Canadian bank to offer negative yield bonds, thus ensuring investors would lose money over the long-term. All of the above-noted behaviors seem to point to the bank's desire to make a quick buck instead of focusing strategically on the long-term.
It is important to balance the qualitative factors outlined above with quantitative figures. To provide some context, CIBC is the fifth largest Canadian bank with $494B of assets at July 31, 2016. The below table compares CIBC to Royal Bank ("RY") which is the largest Canadian bank with $1.2T of assets at July 31, 2016. I chose Royal Bank as a baseline given its leading market position. My other reason for choosing Royal Bank is that I recently sold my RY position in my RRSP as I established a similar position in my unregistered account in January 2016. I was completely comfortable holding an overweight position in Royal Bank for nine months, and would need to feel the same comfort before investing in CIBC.
The below table outlines some valuation, dividend, growth, return, profitability, asset quality, and capitalization metrics that are worth considering when reviewing banks. The ratios below serve as a starting point for my bank analysis.
I found it interesting that despite having pretty similar return, profitability, asset quality and capitalization metrics, CIBC is priced at a ~20% discount compared to Royal Bank. The cheaper price relative to its last 12-months of earnings leads to CIBC currently yielding 70 basis points more than Royal Bank. CIBC has also grown its dividend much more aggressively over the past 12 months, and still has a lower payout ratio than Royal Bank. Although a deeper dive is warranted before making a purchase decision, the price discount of CIBC might be worth the trade off of the risk associated with CIBC landing in future headlines.
Would you invest in CIBC at its current price level?
Friday, September 23, 2016
Two Minute Walk to the Beach???
When my wife and I go on vacations, instead of staying in a hotel, we do home exchanges or rent houses. Having access to a larger place is more practical when you have an energetic two year-old. During our first week in New Brunswick, on Canada’s beautiful east coast, we rented a cottage at Parlee beach in Shediac. One of the reasons my wife chose the cottage was the “2-minute walk to the beach”.
When she first mentioned this “2-minute walk to the beach”, I was skeptical. My business education and work experience have heightened my ability to detect a B.S. sales pitch. When we set off to find the beach the day we arrived, I checked my watch and noted it took us about 10 minutes of wandering to reach our destination. We found a shorter path to return, but it still took over 7 minutes. Over the course of the next few days, being highly analytical, I continued to time our journey to and from the beach. Our times ranged from a tad over 5 minutes to a high of 12 minutes.
You might have noticed in the first paragraph the reference to my energetic two-year son. To say he was a contributing factor to our variable walking times would be equivalent to implying the sun might have played a role in my sun burn. With dogs, school buses, other kids and a lighthouse on the way to the beach, my son was usually distracted and never in a hurry to make it to our destination.
After a week of trekking to the beach with my son, I decided to go for a run on our last day in Shediac. Although I used to be a pretty competitive runner in high school and university, my runs now tend to be of the relaxed variety as I am more focused on enjoying the scenery than achieving personal bests. Of course, my relaxed running attitude didn’t stop me from starting my timer, and heading off for the beach. Despite taking the most direct path, running at a decent pace, and leaving my two-year old son behind, it still took me two minutes and thirty seconds before my bare feet hit the beach sand. While spending 40 minutes running on the wet sand on the edge of the water, I quickly forgot about my failure to make it to the beach in the advertised two minutes and instead enjoyed one of my most invigorating runs of my life.
After five years of reading personal finance and investing blogs, I like to think my B.S. detector is well tuned. As I read about more bloggers achieving financial independence in short periods of time, by following one strategy or another, I'm increasing skeptical about the truth of their claims. I freely admit to making many, many mistakes along my own path, and know that at best, I'm only about half way to my destination. If there are any of you out there that need a reminder, I can assure you that there is no 2-minute walk to the beach, nor is there a safe, rapid path to financial independence. Those who claim otherwise are misleading you, lying to themselves, or simply being ignorant.
Although many of us our focused on our investing metrics and the end result of being financially independent, it truly pays dividends to take a step back and enjoy the journey. As tempting as it is to take short-cuts (high yield stocks are my weakness), cut corners (slashing expenses to the bone to feed a brokerage account), or compare your progress to others (tracking your net worth compared to your favorite bloggers), as was reinforced by my recent run along the ocean, achieving financial independence is not a race, but a beautiful journey.
My second week of holidays in New Brunswick was spent at a lovely ocean view cottage in Caraquet. Any idea what description of the below property would have prompted my wife to pull the trigger? Needless to say that with a park on the way, my son once again proved to me that there is never a 2-minute walk to the beach!
How do you achieve a balance between enjoying the process to financial independence without becoming fixated on the destination?
(Photo taken by Mrs. DiH)
Wednesday, August 31, 2016
September 2016 Dividend Growth Stock Considerations
After initiating positions in Iron Mountain and Canadian Apartment Properties REIT in early August, the latter half of the month was pretty quiet as I collected dividends and received two raises from Royal Bank and Bank of Nova Scotia. During those quiet times, I thought about which companies to target in September.
Canadian Companies:
After appearing on my August watch list and my Ten Canadian Restaurants With Growing Dividends post, four Canadian restaurants remain very interesting to me. The combination of distribution yield, distribution growth, modest price-to-earnings multiples, and same-store-sales growth at the Keg (TSE: KEG.UN), A&W (TSE: AW.UN), Pizza Pizza (TSE: PZA), and Boston Pizza (TSE: BPF.UN) are all drawing me toward investment. Even as their share prices climb toward 52-week highs, I'm considering buying a sampling of the Keg, Boston Pizza and A&W in my RRSP using some of the proceeds from my planned sale of Royal Bank (which I have been overweight for the last six months). Given that the distribution from Pizza Pizza qualifies as an eligible dividend for tax purposes, I would likely buy shares of that company in my unregistered account.
Beyond the four restaurants mentioned above, I find very few Canadian companies that interest me at their current prices. I took a deeper look at Algonquin Power & Utilities Corp (TSE: AQN) as the near 5% yield and 10% dividend growth over the past year was impressive. Equally as important, AQN would add a new sector to further diversify my portfolio. My hesitation comes from the company's high P/E multiple (~28X) and my inability to breakout their growth from maintenance CAPEX in order to determine if their payout is sustainable. I have also considered adding to some of my current holdings in my unregistered portfolio, namely Enbridge Income Fund (TSE: ENF) and Bell Canada (TSE: BCE). Lastly, after a high-level review of the Brookfield group of companies (I will share more in a future post), Brookfield Infrastructure Partners (TSE: BIP.UN) is the most interesting subsidiary. Investing in a company involved in global infrastructure projects is part of my long-term portfolio building plan.
Canadian Companies:
After appearing on my August watch list and my Ten Canadian Restaurants With Growing Dividends post, four Canadian restaurants remain very interesting to me. The combination of distribution yield, distribution growth, modest price-to-earnings multiples, and same-store-sales growth at the Keg (TSE: KEG.UN), A&W (TSE: AW.UN), Pizza Pizza (TSE: PZA), and Boston Pizza (TSE: BPF.UN) are all drawing me toward investment. Even as their share prices climb toward 52-week highs, I'm considering buying a sampling of the Keg, Boston Pizza and A&W in my RRSP using some of the proceeds from my planned sale of Royal Bank (which I have been overweight for the last six months). Given that the distribution from Pizza Pizza qualifies as an eligible dividend for tax purposes, I would likely buy shares of that company in my unregistered account.
Beyond the four restaurants mentioned above, I find very few Canadian companies that interest me at their current prices. I took a deeper look at Algonquin Power & Utilities Corp (TSE: AQN) as the near 5% yield and 10% dividend growth over the past year was impressive. Equally as important, AQN would add a new sector to further diversify my portfolio. My hesitation comes from the company's high P/E multiple (~28X) and my inability to breakout their growth from maintenance CAPEX in order to determine if their payout is sustainable. I have also considered adding to some of my current holdings in my unregistered portfolio, namely Enbridge Income Fund (TSE: ENF) and Bell Canada (TSE: BCE). Lastly, after a high-level review of the Brookfield group of companies (I will share more in a future post), Brookfield Infrastructure Partners (TSE: BIP.UN) is the most interesting subsidiary. Investing in a company involved in global infrastructure projects is part of my long-term portfolio building plan.
United States Companies:
After establishing an almost full position in Iron Mountain (NYSE: IRM) in August, I would consider closing out my position in September on share price weakness combined with prolonged strength in the Canadian dollar vs the USD. The 4.7% dividend yield, guidance indicating double digit annual dividend growth in 2017 & 2018 with 4% growth thereafter, and reasonable price to estimated 2016 FFO =~ 16X have prompted me to consider adding to this planned long-term holding. The other US REIT I would consider adding to my RRSP in order to further provide further sector diversification is Life Storage Inc (NYSE: LSI) which was formerly Sovran Self Storage. Main reasons for this consideration are the lowest price to FFO multiple in the self-storage segment, 4% yield, and strong distribution growth.
Instead of asking which stocks interesting you heading into September 2016, I'm particularly curious if there are any Canadian dividend growth stocks you are looking at closely given their current prices? Thanks in advance for sharing your ideas.
Instead of asking which stocks interesting you heading into September 2016, I'm particularly curious if there are any Canadian dividend growth stocks you are looking at closely given their current prices? Thanks in advance for sharing your ideas.
Friday, August 19, 2016
3 Recent Buys - Alaris, Iron Mountain and Canadian Apartment Properties REIT
As an investor with a very long-term time horizon, I love it when a company I am interested in posts underwhelming quarterly results that fail to meet analyst expectations. At times like these, when the pessimism of short-term traders and speculators leads to deep discounts on the share prices of great companies, I cannot help but gorge myself on stock. My primary challenge when I see shares trading 5-25% lower after an earnings miss is determining to what degree the short-term headwinds the company faced might impact their long-term business results.
One of the greatest advantages I have as an individual investor is my ability to leverage my long-term time horizon in order to take advantage of opportunities of temporary weakness in individual companies. A second key advantage is that I can be very overweight in a company without having to answer to investors, a Board, or shareholders if I think the situation represents a unique opportunity. With that perspective, I present my three most recent buy transactions.
1. Alaris Royalty (TSE: AD)
If you have five minutes, take a peak at Alaris's Q2 earnings news release and ask yourself if any item(s) merit a 20% drop in share price. Yes, there is some bad news relating to KMH, Limited Partnership, but KMH is only one of Alaris's 17 partners, and not even a material one. Instead, the numbers that jump out at me are 23% revenue growth, 7% dividend growth, and 6% CFO growth. My plan to hold my Alaris position in my taxable account instead of my RRSP came to fruition at a much cheaper price than I expected to pay.
2. Iron Mountain (NYSE: IRM)
Since you had five minutes to take a look through Alaris's Q2 earnings, you might have another five to browse Iron Mountain's Q2 results. If you do not feel like taking the time, I can summarize quickly: margin pressure from the Recall acquisition causes an earnings miss. Taking advantage of a 5%+ dip in share prices, I made two purchases in order to diversify my REIT holdings to include a sector I could not invest in through Canadian shares. This shareholder friendly company provides me with global diversification and a starting yield of over 5%.
3. Canadian Apartment Properties REIT (TSE: CAR.UN)
My plan to diversify my REIT holdings got another boost when Canadian Apartment Properties REIT ("CAR") reported Q2 results that missed analyst expectations. Regardless of what analysts expected, operating revenues up over 12%, a 98% occupancy rate, and a 60% net operating margin totally meet my expectations of a great company. Having lived in a CAR building a number of years ago, I have favorable impressions of management and love the cross-Canada geographic diversification of their properties. Re-establishing a position at a 4% distribution yield due to a 5% decline in share price felt like a no-brainer to me.
I am extremely happy with all three of my recent buys and look forward to capitalizing on similar opportunities in the future.
What was your most recent buy and what induced you to pull the trigger?
One of the greatest advantages I have as an individual investor is my ability to leverage my long-term time horizon in order to take advantage of opportunities of temporary weakness in individual companies. A second key advantage is that I can be very overweight in a company without having to answer to investors, a Board, or shareholders if I think the situation represents a unique opportunity. With that perspective, I present my three most recent buy transactions.
1. Alaris Royalty (TSE: AD)
If you have five minutes, take a peak at Alaris's Q2 earnings news release and ask yourself if any item(s) merit a 20% drop in share price. Yes, there is some bad news relating to KMH, Limited Partnership, but KMH is only one of Alaris's 17 partners, and not even a material one. Instead, the numbers that jump out at me are 23% revenue growth, 7% dividend growth, and 6% CFO growth. My plan to hold my Alaris position in my taxable account instead of my RRSP came to fruition at a much cheaper price than I expected to pay.
2. Iron Mountain (NYSE: IRM)
Since you had five minutes to take a look through Alaris's Q2 earnings, you might have another five to browse Iron Mountain's Q2 results. If you do not feel like taking the time, I can summarize quickly: margin pressure from the Recall acquisition causes an earnings miss. Taking advantage of a 5%+ dip in share prices, I made two purchases in order to diversify my REIT holdings to include a sector I could not invest in through Canadian shares. This shareholder friendly company provides me with global diversification and a starting yield of over 5%.
3. Canadian Apartment Properties REIT (TSE: CAR.UN)
My plan to diversify my REIT holdings got another boost when Canadian Apartment Properties REIT ("CAR") reported Q2 results that missed analyst expectations. Regardless of what analysts expected, operating revenues up over 12%, a 98% occupancy rate, and a 60% net operating margin totally meet my expectations of a great company. Having lived in a CAR building a number of years ago, I have favorable impressions of management and love the cross-Canada geographic diversification of their properties. Re-establishing a position at a 4% distribution yield due to a 5% decline in share price felt like a no-brainer to me.
I am extremely happy with all three of my recent buys and look forward to capitalizing on similar opportunities in the future.
What was your most recent buy and what induced you to pull the trigger?
Tuesday, August 16, 2016
4 Canadian Renewable Energy Companies With Growing Dividends
Motivation for my blog entries can come from unlikely sources. In early May, I received a LinkedIn message from a recruiter at Brookfield Renewables asking if I was interested in a position with their firm. I enjoy my current employer, and have no intention of leaving in the short-term, but it was still very flattering to receive the offer. I also remembered reading about one of my local fellow dividend bloggers having a position in Brookfield Renewables, and decided to dig a bit deeper into the company. Being open to diversifying my holdings into other sectors, I expanded my search parameters to include the renewables sector in Canada, looking to see if other companies in the sector had a dividend growth record.
My research into the renewables sector lead me to the S&P/TSX Renewable Energy and Clean Technology Index that includes 19 companies. Seeing some of the names in the index, I became curious about the criteria to be included as I came recognized a bus manufacturer (New Flyer Industries) and packaging company (Cascades Inc). Turns out the criteria to be included in the index are pretty loose, allowing companies that focus on "reducing or eliminating the negative ecological impacts of their operations, while at the same time improving the productive and responsible use of natural resources". These broad criteria create a big enough gap to drive a New Flyer bus through.
To narrow down the search parameters, I screened the list of 19 constituents for positive 1-year dividend growth and market capitalization in excess of CAD 1 billion. The resulting four matches are included on the summary screen below.
What jumped out at me was that there were no clear bargains with trailing P/E ratios ranging from 19X to 6835X. The relatively cheap TransAlta Renewables has the highest dividend yield (6.2%) and the only free cash flow payout ratio under 100%. My would-be suitor Brookfield Renewables has a nice combination of current yield (5.7%) and 1-year distribution growth (7.2%), but is still in the expansion phase leading to their 135% payout ratio and 400X+ trailing P/E multiple. The negative FCF and awe-inducing P/E multiple are enough to turn me off of Innergex Renewable at this time. Algonquin Power is becoming more interesting to me as I did not realize how much of their business related to renewable energy. Algonquin's relatively high distribution growth rate (10%) and payout ratio just north of 100% make me want to wait for a better entry point than a trailing P/E of 30X.
Although none of the four Canadian renewable energy companies profiled above could currently be considered cheap, they all warrant further consideration for inclusion in a diversified portfolio of investments. Here's hoping the S&P/TSX Renewable Energy and Clean Technology Index continues to expand as our continent shifts away from non-renewable energy sources.
Do you own shares in any companies in the renewables sector?
My research into the renewables sector lead me to the S&P/TSX Renewable Energy and Clean Technology Index that includes 19 companies. Seeing some of the names in the index, I became curious about the criteria to be included as I came recognized a bus manufacturer (New Flyer Industries) and packaging company (Cascades Inc). Turns out the criteria to be included in the index are pretty loose, allowing companies that focus on "reducing or eliminating the negative ecological impacts of their operations, while at the same time improving the productive and responsible use of natural resources". These broad criteria create a big enough gap to drive a New Flyer bus through.
To narrow down the search parameters, I screened the list of 19 constituents for positive 1-year dividend growth and market capitalization in excess of CAD 1 billion. The resulting four matches are included on the summary screen below.
What jumped out at me was that there were no clear bargains with trailing P/E ratios ranging from 19X to 6835X. The relatively cheap TransAlta Renewables has the highest dividend yield (6.2%) and the only free cash flow payout ratio under 100%. My would-be suitor Brookfield Renewables has a nice combination of current yield (5.7%) and 1-year distribution growth (7.2%), but is still in the expansion phase leading to their 135% payout ratio and 400X+ trailing P/E multiple. The negative FCF and awe-inducing P/E multiple are enough to turn me off of Innergex Renewable at this time. Algonquin Power is becoming more interesting to me as I did not realize how much of their business related to renewable energy. Algonquin's relatively high distribution growth rate (10%) and payout ratio just north of 100% make me want to wait for a better entry point than a trailing P/E of 30X.
Although none of the four Canadian renewable energy companies profiled above could currently be considered cheap, they all warrant further consideration for inclusion in a diversified portfolio of investments. Here's hoping the S&P/TSX Renewable Energy and Clean Technology Index continues to expand as our continent shifts away from non-renewable energy sources.
Do you own shares in any companies in the renewables sector?
Tuesday, August 2, 2016
August 2016 Dividend Growth Stock Considerations
After experimenting with the format of my June watch list, and skipping a July list altogether due to my vacation and lack of oustanding opportunities, below are some stocks I am considering for purchase in August.
Canadian Companies: Four Restaurants & Two REITs
As I indicated in my post Ten Canadian Restaurants With Growing Dividends, there are a number of Canadian restaurants that I am interested in. In particular, the combination of distribution yield, distribution growth, modest price-to-earnings multiples, and same-store-sales growth at the Keg (TSE: KEG.UN), A&W (TSE: AW.UN), Pizza Pizza (TSE: PZA), and Boston Pizza (TSE: BPF.UN) are all drawing me toward investment. The main thing holding me back from purchasing units in any of the four restaurants is the strong price appreciation since I posted that entry in May. Despite the share price appreciation, I will likely add shares in the Keg or A&W in my TFSA. As unscientific as it might sound, I enjoy the food and dining experience at Keg & A&W far more than that at Pizza Pizza and Boston Pizza, and will feel more comfortable being a shareholder in businesses that I patronize.
After adding shares in Granite REIT earlier this year, there are two other REITs that interest me which were covered in my post Canadian REITs With Growing Distributions. Since I plan to write more on the Brookfield group of companies later this month, I will simply note that Brookfield Canada Office Properties (TSE: BOX.UN) offers a good combination of current yield (~4.5%) and growth (~5.7% over the past year) at a reasonable Price/FFO multiple. Despite having a lower current yield (~3.9%) and distribution growth rate (~3.3%), I am still attracted to Canadian Apartment Properties REIT (TSE: CAR.UN) due to exposure to the rental market in large Canadian cities. For those of my readers south of the Canada/US border, home prices in many large Canadian cities (Toronto and Vancouver being the most obvious examples) have entered what I consider to be the bubble zone. Even in Ottawa, among my younger professional colleagues, many are currently renting while they wait for house prices to correct downwards. As the housing bubble continues to inflate, CAR.UN stands to benefit from rent increases and growth opportunities to provide affordable rental housing.
Canadian Companies: Four Restaurants & Two REITs
As I indicated in my post Ten Canadian Restaurants With Growing Dividends, there are a number of Canadian restaurants that I am interested in. In particular, the combination of distribution yield, distribution growth, modest price-to-earnings multiples, and same-store-sales growth at the Keg (TSE: KEG.UN), A&W (TSE: AW.UN), Pizza Pizza (TSE: PZA), and Boston Pizza (TSE: BPF.UN) are all drawing me toward investment. The main thing holding me back from purchasing units in any of the four restaurants is the strong price appreciation since I posted that entry in May. Despite the share price appreciation, I will likely add shares in the Keg or A&W in my TFSA. As unscientific as it might sound, I enjoy the food and dining experience at Keg & A&W far more than that at Pizza Pizza and Boston Pizza, and will feel more comfortable being a shareholder in businesses that I patronize.
After adding shares in Granite REIT earlier this year, there are two other REITs that interest me which were covered in my post Canadian REITs With Growing Distributions. Since I plan to write more on the Brookfield group of companies later this month, I will simply note that Brookfield Canada Office Properties (TSE: BOX.UN) offers a good combination of current yield (~4.5%) and growth (~5.7% over the past year) at a reasonable Price/FFO multiple. Despite having a lower current yield (~3.9%) and distribution growth rate (~3.3%), I am still attracted to Canadian Apartment Properties REIT (TSE: CAR.UN) due to exposure to the rental market in large Canadian cities. For those of my readers south of the Canada/US border, home prices in many large Canadian cities (Toronto and Vancouver being the most obvious examples) have entered what I consider to be the bubble zone. Even in Ottawa, among my younger professional colleagues, many are currently renting while they wait for house prices to correct downwards. As the housing bubble continues to inflate, CAR.UN stands to benefit from rent increases and growth opportunities to provide affordable rental housing.
United States Companies: A Hold-Over from June and An Old Friend
One of my plans within my RRSP is to create a basket of US REITs covering industries that I cannot invest in through the Canadian markets. Iron Mountain (NYSE: IRM) offers storage and information management services to companies worldwide. Although I am usually reluctant to buying a stock trading near its 52-week high ($41.50), there is a lot to like about this unique company. The 4.7% dividend yield, guidance indicating double digit annual dividend growth in 2017 & 2018 with 4% growth thereafter, Price to estimated 2016 FFO =~ 17X, Price to estimated 2016 AFFO =~ 15X, and a recently upgraded BB-/Stable credit rating from S&P all help provide me comfort initializing a position. Now if only the Canadian Dollar could pick up a little steam against its US Dollar counterpart.
I was pleasantly surprised last month when Omega Heathcare Investors (NYSE: OHI) announced a two cent distribution increase instead of their normal one cent distribution raise they provided each quarter over the last three years. Although I have a full position in Omega within my RRSP, I continue to find the yield (~7%) and relatively low P/FFO (~13X) tempting. Although I would likely not add much to my current position, I could definitely justify nibbling a bit more on Omega.
I was pleasantly surprised last month when Omega Heathcare Investors (NYSE: OHI) announced a two cent distribution increase instead of their normal one cent distribution raise they provided each quarter over the last three years. Although I have a full position in Omega within my RRSP, I continue to find the yield (~7%) and relatively low P/FFO (~13X) tempting. Although I would likely not add much to my current position, I could definitely justify nibbling a bit more on Omega.
Which stocks interest you heading into August 2016?
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