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? 

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.

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.

Which stocks interest you heading into August 2016?

Vacation Motivation

Returning to work this past Monday after two weeks of vacation was extremely difficult. I woke up an hour earlier than I had for the previous two weeks, was 20 minutes late dropping my son off at daycare, almost fell asleep on the bus to work, missed my floor on the elevator, and then quickly ingested a huge amount of coffee to get me through a morning of second language training. Things did not improve after a late lunch, as I spent the better part of the afternoon sorting through and replying to the hundreds of messages I missed while away. After arriving home, holding up my head through supper, taking a quick walk outside with my son, and then putting him down, all I could manage that night was laying on the couch while watching episodes of Trailer Park Boys. Simply put, two weeks of vacation completely destroyed my weekday routine.

Despite that horrible first day back, I would not change a thing regarding my two week vacation. Every vacation I take motivates me to work harder in order to achieve financial independence at an earlier age. Here are the four reasons why vacations motivate me.

1. Preview of Financial Independence

Although I have no idea what I will do in terms of work, hobbies, or or other pursuits after I reach financial independence, I love experimenting how I will spend my time while on vacations. For the first time ever, my wife and I decided to try a "staycation" during our first week off. Even though we kept very busy doing projects around the house, visiting a couple museums with our son, playing some extra ultimate frisbee, and throwing my son a birthday party with my family, neither one of us particularly enjoyed our first staycation. Yes, we definitely saved a lot of money by not travelling, but we both felt overwhelmed completing numerous projects around the house.

However, with just a slight change of location, to my brother in-law's cottage in St. Alphonse Quebec, our second week of vacation was heavenly. The country air and spending time with my wife's family was very enjoyable and even led to my son sleeping in until 9am one morning (vs his usual 6:30am wake-ups during week days)! The most stressful decisions revolved around what to eat for meals (pro-tip: you can never go wrong with barbecue) and how to stop the bugs from biting us around the campfire. We took great pleasure in swimming, kayaking, going for walks, and reading books, all very low cost, but high enjoyment activities. Although my wife mentioned feeling a bit isolated in the countryside, we both agreed that spending time at a cottage was much more enjoyable than our staycation.

2. Time for Reflection 

While listening to a Tim Ferriss's podcast while painting during the staycation portion of my vacation, and noting that he starts his day with meditation, I was quickly sold on setting aside some time for reflection. Ever since the birth of my son, I feel in a constant state of movement, rarely able to stop and recharge. My focus tends to be on the moment, which impairs my ability to reflect on accomplishments. With an increased amount of free time during the two weeks away from work, I set aside sometime to reflect.

The result of taking some time to reflect on my accomplishments was realizing how lucky I have been over the past couple years. Having a healthy son, beautiful wife, job I enjoy, and leading a very comfortable life is no small feat. Realizing how many blessings I have in my life made me feel grateful, and has prompted me to think of more ways to help others. In that spirit, I wanted to share one of my "financial experiments" I have been most proud of this year with you, in the hopes that some of you might try it yourselves: trying to make someone's day better by spending a nominal amount of money.  So far in 2016, every time that I feel particularly down, I make a conscious effort to think of someone who is having a worse day than me, and brainstorm a way to improve it. Although far from scientific, I have been able to lift my spirits each time I conduct this experiment, along with the mood of the individual I choose to focus on. Given most of the recipients have been chosen for pretty personal reasons, I am not comfortable sharing the specifics of this experiment, but will say that for the cost of a cup of coffee, a gift card, flowers, or a meal, I have brightened some days in 2016, including my own.

3. Determining The Cost of Independence

Since one of my main goals this year is to get a better idea of how I spend my money, keeping track of my vacation expenses served the dual purpose of contributing to my total accounting of expenses, while also allowing me to see how much it costs to enjoy myself away from work for a couple of weeks. As mentioned in my first point above, our staycation week was pretty inexpensive, as we mainly focused on doing things around the house, and taking in a couple of museums. Both of the museums were free (except for parking costs) as we simply borrowed passes from our local library. The only expense that rose significantly during our staycation was ice cream...as we tried a place near where we lived, and made a couple of extra trips to Chocolat Favoris (the best dipped cones I have ever tasted). 

Although the second week of vacation was slightly more expensive, it was still very much affordable. We were lucky to borrow my brother-in-law's cottage for the week, and we left him a cash gift to thank him for his generosity. I took advantage of an offer of free-babysitting by my wife's parents to take her our for dinner and a movie, which was easily the most expensive day of our vacation. That said, I found the quality time alone with my wife to be well worth the cost. In fact, spending time together was priceless from my perspective. To summarize, the two weeks of vacation were very low cost, and I am looking forward to comparing them to how much we spend on vacation for another two weeks in September.

4. Testing My S.W.A.N. Portfolio

Last year, as I prepared to go on vacation, I came to realize that my portfolio did not allow me to sleep well at night (S.W.A.N.). Therefore, last year I kept my portfolio notification emails on, I invested some cash before leaving on vacation, and then I even conducted a couple trades while on vacation. A year later, and ever so slightly wiser, I am happy to report that my portfolio is almost ready to be considered a SWAN. As I will write about next week, the only transaction I undertook before going on vacation was selling half of my stake in Corus Entertainment, as its the sole company I own that I do not have total confidence in. That done, I was able to completely disconnect for two weeks, and not worry about which way the market was moving, or what was happening with my holdings. The only changes to my holdings that were notable upon returning was that Omega Heathcare Investors raised their dividend by twice as much as I expected, and Corus reported weaker earnings than anticipated. All in all, my slightly more boring portfolio continues to do well and generate an ever increasing stream of dividends.

In summary, my two weeks of vacation were fantastic as they allowed me to preview how I might spend my time when I am financially independent and how much those activities would cost. Additionally, the vacation allowed me some time to reflect on my progress and test my portfolio to ensure it did not stress me out too much. 

What are your summer vacation plans???

Mid-Year Update on 10 Canadian Dividend All-Stars for 2016

After picking 10 stocks at the start of the year from the Canadian Dividend All-Star list (one from each sector represented on the list), and seeing them return 8.6% through March 31st, it is time to check them again to see how they performed through the first half of the year.  Before presenting the results, my disclaimers from the initial entry remain valid. Certain sectors contained only a small number of potential companies, namely Real Estate (3) and Technology (2). Additionally, my knowledge of the Basic Materials and Technology sectors is extremely limited...and even that might be giving myself too much credit. Therefore, my picks in those two sectors were based mainly on financial ratios and technical information. Lastly, I only own three of the companies I selected (Enbridge, Telus, and Bank of Nova Scotia), and would need to perform more due diligence on the remaining seven companies before committing capital to them.

Without further delay, here are the results of my picks through six months.

Although the 11.9% average total return (assuming an equal weight for each pick) is impressive, some context is needed. The S&P/TSX Composite Index was up 8.1% (excluding dividends) over the same period. Adding 1000 - 1200 basis points to account for dividends results in a comparable gain of 9.1 - 9.3%. A more apt benchmark, the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSE:CDZ) had a total return including dividends of 9.8%.

One observation that makes me quite happy is that the three companies which I own (ENB, T, BNS) all returned over 10% (21.3%, 11.1%, and 15.7% respectively). That said, my best pick SNC-Lavalin, which I have owned in the past and knew would benefit from the Liberal government's plans to invest in infrastructure, did not impress me enough to invest in, probably due to their 1.9% dividend yield. Its also interesting to note that my picks from the sectors where I feel least knowledgeable, Agrium (Basic Materials) and Evertz Technologies (Technology) performed poorly. There is probably something to be said with sticking to companies in sectors you understand. Lastly, being a contrarian, shares of Magna are starting to look interesting to me. Magna is an investment grade, multinational company, that is a leading automobile parts supplier. Beyond their global footprint, Magna pays its fast-growing dividend, that is well covered by their rising profits, in US dollars.

I would be remiss if I did not mention a pick I made when a fellow blogger from my area asked for my top investment pick for 2016 (thanks again for including me R2R!). My pick, TransCanada Corporation, is up 31.9% (including two dividends paid) from the start of the year. Although I thought about increasing my stake in TransCanada when it was on sale in January, I did not have the conviction to pull the trigger. TransCanada's recently completed the acquisition of Columbia Pipeline Group for $13B.  The acquisition seems to be helping management to be more focused in their capital allocation decisions, which should benefit the company going forward. Despite the high return during the first half of 2016, I would be reluctant to invest more in TransCanada at the current share price, as I feel the company is fully valued at the moment.

Although the first half of 2016 was a quite slow with only one new position (Granite REIT) being added to my investment holdings, my "picks" are over achieving my wildest expectations. The plan for next year is to put a nominal amount of money behind my picks to add a little motivation.

How have your stock picks heading into 2016 performed? 

2016 Goals at Mid Year

A goal without a plan is just a wish"
- Antoine de Saint-Exupery

After achieving all of my goals in 2015, I set some very ambitious objectives for 2016. Since I am on a quest to be financially independent and improve the quality of my life, my three categories of goals correspond to those over-riding themes: passive income, expenses and personal improvement. Keeping in mind the above quote, included below each goal are some bullet points forming a plan to achieve the target. My progress toward the large goals and plans are covered in italics below.

Increase Passive Income by 25% (up 4.7% at June 30th*)
- Make regular contributions to my investment accounts representing approximately 50% of my take-home pay. On track
- Maximize my investments in tax preferred accounts (i.e. RRSP, TFSA, RESP). Completed!
- Achieve a weighted average dividend growth for my total portfolio of 5%. Dollar weighted average dividend growth rate of 2.7% at mid-year.**
- Avoid dividend cuts. No dividends cut at mid-year!
- Do NOT add to any holdings that have not raised their dividend in the past 12-months. On track
- Add an additional source of passive income beyond dividend stocks. Ignoring this goal due to tax reasons
- Limit short-term trades to a maximum of one per month. Six short-term trades at mid-year -> On track

* The main reason I am not on track for increasing passive income is that I have been very slow to deploy capital. The cash portion of my investment portfolio is currently 210% higher than it was at year end 2015. There are very few stocks that I am interested in at their current prices.
** After some experimenting, I am now able to calculate total return for my portfolio, which was 22.8% in the first half of 2016. I plan on reporting this figure as a key performance metric during future goal updates. 

Understand Where My Money is Being Spent
- Track large variable expenses such as costs associated with my car, gifts, work, taxes, sports, cottage, and anything appearing on my personal credit card. Regularly update my spreadsheet -> On track
- Save at least $1000 this year on variable expenses. Saved on bank fees, haircuts, tire changes, and short-term trading costs -> Still a bit behind on $1000 per year target
- Continue to make investments that decrease expenses over time (i.e. tools for changing the tires of our cars, hair cutting equipment, etc.). Hair clipper and belt sander -> On track
- In-line with the above goal, get the roof of my cottage repaired. Behind on this, have to make a call

Personal Improvement* 
- 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.  Zero for three so far :(
- Write at least 52 blog entries this year while focusing on quality (i.e. no filler entries). 28 entries at mid-year -> On track
- Complete at least five workouts every week. Have not done this consistently
- Run a 5km, 10km, and half-marathon in 2016. Zero for three so far
- Take my wife on at least one weekend getaway. Completed!
- Be mentally present and focused when spending time with my son. Doing better at this goal
- Continue money/personal improvement experiments (i.e. developing a new skill in 20 hours). Only two ongoing experiments to date (brighten someone's day for $20 or less and aim for 10,000 steps a day). 
- Identify three areas/jobs at my company that interest me and talk to employees in these areas. Have interviewed in two different areas of my company during the first half of 2016 -> On track
- Complete at least one personal development course relating to my profession. Must look into this soon
- Make meaningful donations of time, money, and stock to causes that I feel passionate about. Have donated money to a couple of my favorite causes, but have to look into donating stock and time. 

* Out of my three major goals, I have made the least progress in this area. I am likely focusing too much on the financial goals, and not enough on improving the quality of my life. I must turn this around in the second half of the year. 

Although I am not doing as well in any of the major areas as I would like, I have made some decent progress on certain initiatives. I was pretty happy when I saw my dollar weighted dividend growth rate of 2.7% today given a couple of my largest holdings have yet to announce any dividend raises in 2016 (i.e. Alaris, Enbridge, Enbridge Income, etc.). Additionally, I feel quite proud of some of my accomplishments such as maximizing contributions to tax preferred accounts, tracking material expenses, and taking my wife on a weekend getaway. My two biggest areas of focuses during the second half of 2016 will be looking for opportunities to deploy capital and focusing on personal improvement.

How are you tracking against your 2016 objectives?