Investing

Investing Idea - Dividend Growth

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  • Apr 27th, 2017 2:27 pm
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Member
Mar 8, 2004
411 posts
34 upvotes
dvd5 wrote:
Mar 1st, 2017 11:09 pm
Would this make tomorrow's open price drops to C41?
Yes there should be a sizeable drop at market open.
Member
Mar 14, 2015
445 posts
11 upvotes
Vancouver, BC
Thanks, will start with these!

What other sectors would utilize something different from adjusted earnings?

REITS, pipelines
Financials(Banks)?

Anything else?
rodbarc wrote:
Mar 1st, 2017 6:26 pm
First, I strongly recommend laying out the foundation by reading these books:
- The Intelligent Investor, by Benjamin Graham;
- Security Analysis, by Benjamin Graham
- Common stocks and Uncommon Profits, by Philip Fisher

Investopedia has a lot of great material to understand it further. For example:
Finding value in Financial Reporte and Balance Sheet
Finding value in Income Statements

However, not every sector is evaluated the same way. Reading the Investor's presentations, annual reports and listening through earnings call is a great way to learn how each industry operates and what metrics can be useful. For example, pipelines and real estate income trusts should be using Adjusted Funds from Operations instead of operating earnings, given the high depreciation expenses. Some industries have specific non-gaap metrics to determine how healthy (or risky) they really are.

I will post more articles / comments / quotes / papers on the how-to topic, this can greatly enhance the diligence process and provide inspiration.


Rod
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Mar 14, 2009
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Woodbridge
rodbarc wrote:
Mar 1st, 2017 6:39 pm
I plan to post articles like this one from time to time on the upcoming website. Posting an old but relevant article from Morningstar.


"I don't understand why business schools don't teach the Warren Buffett model of investing. Or the Ben Graham model. Or the Peter Lynch model. Or the Martin Whitman model. (I could go on.) In English, you study great writers; in physics and biology, you study great scientists; in philosophy and math, you study great thinkers; but in most business school investment classes, you study modern finance theory, which is grounded in one basic premise--that markets are efficient because investors are always rational. It's just one point of view. A good English professor couldn't get away with teaching Melville as the backbone of English literature. How is it that business schools get away with teaching modern finance theory as the backbone of investing? Especially given that it's only a theory that, as far as I know, hasn't made many investors particularly rich.

Meanwhile, Berkshire Hathaway, under the stewardship of Buffett and vice chairman Charlie Munger, has made thousands of people rich over the past 30-odd years. And it has done so with integrity and a system of principles that is every bit as rigorous, if not more so, as anything modern finance theory can dish up.

On Monday, 11,000 Berkshire shareholders showed up at Aksarben Stadium in Omaha to hear Buffett and Munger talk about this set of principles. Together these principles form a model for investing to which any well-informed business-school student should be exposed--if not for the sake of the principles themselves, then at least to generate the kind of healthy debate that's common in other academic fields.

Whereas modern finance theory is built around the price behavior of stocks, the Buffett model is centered around buying businesses as if one were going to operate them. It's like the process of buying a house. You wouldn't buy a house on a tip from a friend or sight unseen from a description in a newspaper. And you surely wouldn't consider the volatility of the house's price in your consideration of risk. Indeed, regularly updated price quotes aren't available in the real estate market, because property doesn't trade the way common stocks do. Instead, you'd study the fundamentals--the neighborhood, comparable home sales, the condition of the house, and how much you think you could rent it for--to get an idea of its intrinsic value.

The same basic idea applies to buying a business that you'd operate yourself or to being a passive investor in the common stock of a company. Who cares about the price history of the stock? What bearing does it have on how the company conducts business? What's important is whether you can purchase at a reasonable price a business that generates good returns on capital (Buffett likes returns on equity in the neighborhood of 15% or better) without a lot of debt (which makes returns on capital less dependable). In the best of all worlds, the company will have a competitive advantage that allows it to sustain its above-average ROE for years, so you can hang on to it for a long time--just as you would live in your house--and reap the power of compounding.

Buffett further advocates investing in businesses that are easy to understand--Munger calls it "clearing one-foot hurdles"--so you can come up with more reliable estimates of their long-term economics. Coca-Cola's basic business is pretty staid, for example. Unit case sales and ROE determine the company's future earnings. Companies like Microsoft and Intel--good as they are--require clearing much higher hurdles of understanding because their business models are so dependent on the rapidly evolving world of high tech. Today it's a matter of selling the most word-processing programs; tomorrow it's the Internet presence; after that, who knows. For Coke, the challenge is always to sell more cases of beverage.

Buying a business or a stock just because it's cheap is a surefire way to lose money, according to the Buffett model. You get what you pay for. But if you're evaluating investments as businesses to begin with, you probably wouldn't make this mistake, because you'd recognize that a good business is worth buying at a fair price.

Finally, if you follow the Buffett model, you don't trade your investments just because our liquid stock markets invite you to do so. Activity for the sake of activity begets high transaction costs, high tax bills, and poor investment decisions ("if I make a mistake I can sell it in a minute"). Less is more.

I'm not trying to pick a fight with modern finance theory enthusiasts. I just find it unsettling that basic business-school curricula don't even consider models other than modern finance theory, even though those models are in the marketplace proving themselves every day." - Catherine Odelbo.


Rod
That's a great share, thank you!

Just watched the new HBO documentary on Buffett on the weekend. Was nice and very interesting to see the dynamic between him and Charlie. Also offered great insight into how his mind works, and how focused and really pointed it is.
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Jun 3, 2009
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Montreal
Gabriella wrote:
Mar 2nd, 2017 6:28 am
Yes there should be a sizeable drop at market open.
I guess the market reaction was better than anticipated.
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Member
Mar 8, 2004
411 posts
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cn_habs wrote:
Mar 2nd, 2017 10:59 am
I guess the market reaction was better than anticipated.
Yup. The market sure does work in mysterious ways.
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Apr 23, 2009
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Yes, but only slightly in this case. The issue price was $41 (3.3% discount to march 1st closing price).

"The Shares were offered and are being sold directly to the institutional investor by Fortis without an underwriter or placement agent. The net proceeds of the Offering will be used to repay short-term indebtedness and for general corporate purposes."


This mean they will save the underwriting costs which can be up to 7%. Besides, FTS is paying down short term debts which will increase the value of FTS by proportionate amount. So it's a wash. Also, paying down debts increases free cash available. If the issue price had substantial discount then it would be dilutive.

"Furthermore, we expect no further equity issuances over our five-year plan period to fund our base capital plan of C$13 billion. We anticipate that it will be self-funded through internally generated cash flows, debt at our regulated utilities and our dividend reinvestment plan,"

Another positive!
stt55pot wrote:
Mar 1st, 2017 10:49 pm
doesn't that dilute shareholders equity? fts.to?
Member
Mar 4, 2007
322 posts
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Calgary
Can anyone do an analysis on the railways, CNR or CP. Looking to see if they fairly valued.
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Jun 15, 2005
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jalaram wrote:
Mar 3rd, 2017 3:09 pm
Rod, have you made your March purchases yet? I'm curious about that list.
I second this post... have been checking here regularly :)
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Oct 13, 2010
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Which REITs are currently the most attractive at the moment ?
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Dec 13, 2011
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Haha. I'm watching Rod list too.
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Member
Mar 14, 2015
445 posts
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Vancouver, BC
Hey Rod,

Is IPL's inconsistent free cash flow graph on fastgraphs concerning even though it's estimated to increase in the next couple years?
Deal Addict
Jun 3, 2009
3380 posts
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Montreal
Rod, do you have any input on how the projected EPS decrease in 2019 shown on Fastgraphs is going to affect total return?

Thanks.
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[OP]
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Dec 14, 2010
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March 2017 purchases:

There are 2 sectors that the current portfolio for this thread doesn't have: Info Tech and Materials. The stocks on my list for Info Tech sector are expensive. However, on the materials side, AirBoss seems fairly valued, given the aggressive estimated growth, but I take those estimates with a grain of salt given that's based on commodity price where it goes beyond the company's control. Analyst score card is poor for this reason. Therefore, I'll be adding it for this month, as I consider it fairly valued trading at a reasonable multiple.

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My portfolio is also significantly down on MDA.TO. I believe MDA.TO is attractive at this price, so I'm adding more to it:

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On the US side, I don't have any position for the portfolio I started on this thread on Health Care sector, so I'm initiating a position on ABBV, which is undervalued in my opinion:

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Below follows the Canadian DGI portfolio performance for this thread:

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And here follows the US DGI portfolio performance for this thread:

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Rod
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FlyOverMyDoodle wrote:
Feb 27th, 2017 1:03 am
Hey Rod,

Thoughts on CUF.UN as a REIT versus AP.UN?
Like posted earlier, I'm not a fan of CUF.UN given their high AFFO ratio:

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This is the first thing I look at a REIT. It doesn't meet my quality criteria. They have little buffer in keeping the dividend if they face bigger challenges.


Rod
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