Investing

Investing Idea - Dividend Growth

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  • Nov 22nd, 2017 2:06 pm
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gouki556 wrote:
Apr 25th, 2017 12:31 pm
Rod, what do you think about NYSE:GSK ? I notice it's not on your healthcare watch list.
Earnings and dividends too erratic for my liking, so they don't pass my screening criteria. This is a UK company, and I've seen it sometimes dividend (and operating earnings info) being discrepant from their financial reports (some issue with CapitalIQ currency conversion), so if their financial statements reflect this graph, I'd personally look to other options:

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Rod
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Thank you!
rodbarc wrote:
Apr 26th, 2017 7:21 am
I find ENB fairly valued at the moment, from both operating cash flow and earnings perspective:

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From an operating cash flow perspective, ENF looks undervalued to me:

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Rod
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rodbarc wrote:
Apr 23rd, 2017 8:51 pm
Yes, I've added both EQB and HCG recently with their drop as I haven't seen anything that substantially impacts their business model or fundamentals. Earnings are coming up and will give better insight - but even if they disappoint, I'd need several years of declining earnings and no management reaction to stop partnering with them. Their recent move to diversify will help mitigate risks from the so-called real estate bubble.


Rod
Rod, what is your take on the latest development? I would be hard pressed to see the business as a going concern being in jeopardy, but there is the chance of a takeover. I still believe the most likely outcome is that it will weather the issues and get back to normal, but what are your thoughts? Has it changed from your comment on Monday?

Alex
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rodbarc wrote:
Apr 23rd, 2017 8:51 pm
Yes, I've added both EQB and HCG recently with their drop as I haven't seen anything that substantially impacts their business model or fundamentals. Earnings are coming up and will give better insight - but even if they disappoint, I'd need several years of declining earnings and no management reaction to stop partnering with them. Their recent move to diversify will help mitigate risks from the so-called real estate bubble.

Rod

Been following this thread from the shadows for a while before registering, and since I did it at last I have questions too.

What exactly is the difference between EQB and HCG. Seeing as both stocks plummeted I believe they are owned by the same corporate?

HCG has a yield now of 16%. EQB only 2.44% even after the big decline. If they are owned by the same corporate, why would I not go for HCG with the insane yield over EQB?

I would actually like to take advantage of this huge decline, so why would I pick a slot over the other? Dividend yield and retainment would be an important aspect, so if HCG would be slashing or stopping the dividend (what is your opinion if this would happen or not?) then I would like EQB.
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vikingabroad wrote:
Apr 26th, 2017 10:24 am
Rod, what is your take on the latest development? I would be hard pressed to see the business as a going concern being in jeopardy, but there is the chance of a takeover. I still believe the most likely outcome is that it will weather the issues and get back to normal, but what are your thoughts? Has it changed from your comment on Monday?

Alex
There are certainly growing risks and concerns, but I continue to hold it - I haven't added any now and I won't do until a few earnings call clarify the next steps (similar approach to management mishaps from EMP.A). This might turn into a rare case of growing earnings and being permanently impaired due to dried cash flows. From a quality metric perspective, there was nothing indicating that, and trust / sentiment will drive lower cash flows now, which can impact them. Fraud at this level is not common, a lot of regulation was put in place after 2008, and I'm sure new measures will come out of that. I've obviously been trusting management given the good (GAAP included) results from the past and continuous good metrics on the business that they operate on (besides the fact that sentiment, not earnings, have been driving price down), and the fact that this was below book value, but once fundamentals start to deteriorate (such as drying cash flow), then real risks start to grow.

Today is an extreme day and I wouldn't do anything. I might reduce some if there's a big bounce back. At this point, I plan to sell everything only if fundamentals become impaired beyond recovery. Although it's a risk to sell too late in the game, that's the cost to separate emotions.

That's why diversification is so important. I'm positive I'll make similar mistakes in the future, specially if financial metrics look decent when compared to stock price. But my portfolio overall is somewhat protected, given not only the other investing holdings, but also the trading stocks that are part of the total portfolio.


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Chance7652 wrote:
Apr 24th, 2017 10:35 pm
Hi Rod,

I currently own BIP and I'm looking at BAM and NYSE:MIC. How do you think the value looks for these three stocks?
BAM looks fairly valued from an operating cash flow perspective:

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NYSE:MIC looks fairly valued from an operating cash flow perspective, but I'm not sure if that's the best way to valuate them, since their adjusted operating earnings looks out to lunch and the other type of earnings are inconsistent (fairly valued on tax adjusted earnings, overvalued on diluted earnings, etc).

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BIP looks a bit overvalued right now:

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Rod
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rodbarc wrote:
Apr 26th, 2017 6:26 pm
BAM looks fairly valued from an operating cash flow perspective:

Image

NYSE:MIC looks fairly valued from an operating cash flow perspective, but I'm not sure if that's the best way to valuate them, since their adjusted operating earnings looks out to lunch and the other type of earnings are inconsistent (fairly valued on tax adjusted earnings, overvalued on diluted earnings, etc).

Image

BIP looks a bit overvalued right now:

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Rod
Thanks Rod!
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rodbarc wrote:
Apr 26th, 2017 3:45 pm
There are certainly growing risks and concerns, but I continue to hold it - I haven't added any now and I won't do until a few earnings call clarify the next steps (similar approach to management mishaps from EMP.A). This might turn into a rare case of growing earnings and being permanently impaired due to dried cash flows. From a quality metric perspective, there was nothing indicating that, and trust / sentiment will drive lower cash flows now, which can impact them. Fraud at this level is not common, a lot of regulation was put in place after 2008, and I'm sure new measures will come out of that. I've obviously been trusting management given the good (GAAP included) results from the past and continuous good metrics on the business that they operate on (besides the fact that sentiment, not earnings, have been driving price down), and the fact that this was below book value, but once fundamentals start to deteriorate (such as drying cash flow), then real risks start to grow.

Today is an extreme day and I wouldn't do anything. I might reduce some if there's a big bounce back. At this point, I plan to sell everything only if fundamentals become impaired beyond recovery. Although it's a risk to sell too late in the game, that's the cost to separate emotions.

That's why diversification is so important. I'm positive I'll make similar mistakes in the future, specially if financial metrics look decent when compared to stock price. But my portfolio overall is somewhat protected, given not only the other investing holdings, but also the trading stocks that are part of the total portfolio.


Rod
There wont be a few more earnings calls for HCG its about toast.

And I think you asked my investing style earlier...

I only invest in good quality grade a blue chips:

BCE
TD (have reduced position)
BNS (have reduced position)
Cineplex (my riskiest stock but good moat and stable)
Enbridge Income Fund
Enbridge
Emera
Enercare
Brookfield Infrastructure
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rodbarc wrote:
Apr 26th, 2017 3:45 pm
There are certainly growing risks and concerns, but I continue to hold it - I haven't added any now and I won't do until a few earnings call clarify the next steps (similar approach to management mishaps from EMP.A). This might turn into a rare case of growing earnings and being permanently impaired due to dried cash flows. From a quality metric perspective, there was nothing indicating that, and trust / sentiment will drive lower cash flows now, which can impact them. Fraud at this level is not common, a lot of regulation was put in place after 2008, and I'm sure new measures will come out of that. I've obviously been trusting management given the good (GAAP included) results from the past and continuous good metrics on the business that they operate on (besides the fact that sentiment, not earnings, have been driving price down), and the fact that this was below book value, but once fundamentals start to deteriorate (such as drying cash flow), then real risks start to grow.

Today is an extreme day and I wouldn't do anything. I might reduce some if there's a big bounce back. At this point, I plan to sell everything only if fundamentals become impaired beyond recovery. Although it's a risk to sell too late in the game, that's the cost to separate emotions.

That's why diversification is so important. I'm positive I'll make similar mistakes in the future, specially if financial metrics look decent when compared to stock price. But my portfolio overall is somewhat protected, given not only the other investing holdings, but also the trading stocks that are part of the total portfolio.


Rod
I'm posting here about HCG because the HCG thread is too messy. Before saying anything, I want to congratulate the winnings of those who shorted HCG. However, I am by no means a stock guru, but here is my own due diligence on HCG as a retail investor and would like second thoughts as to things that I could be missing:

On concerns with HCG's GICs
News says banks like Scotiabank are putting limits on the amounts clients can buy GICs offered by Home Trust. I think this might be simply a precaution so that when you go to your local financial advisor, and ask about what you saw on CBC about Home Trust, they can just tell you it's fully insured by CDIC (limit is $100k max on Home Trust GICs)

HCG said when the mass withdrawal from HISAs happened, GICs remained the same. This is obvious, because, GICs are locked in. As of Dec 31 2016, HCG has 13.4 billion from giving out GICs, which is relatively larger than their "deposits payable on demand". The fact that CDIC insured GICs <$100k are continued to be offered by big banks like Scotia, and at a more attractive rate, suggests to me that GIC flow should continue when the average retiree goes to Scotiabank to renew their GIC ladder.

On concerns with cash available, recent mass withdrawals, requested 2 billion in credit from a major institutional investor

Their audited and consolidated balance sheet from their 2016 annual report shows that their total assets > total liabilities. The only things causing trouble here are fear-induced mass withdrawals from "deposits payable on demand" (from savings accounts):

Annual report shows in Dec 31, 2016:
They had 1.2 billion in liquid cash and cash equivalents. Deposits payable on demand total to 2.5 billion. So in Dec 31,2016, if everyone withdrew everything, from on-demand deposits, they'd be short 1.3B, and would have to start to sell all the other things that I didn't even mention that amount to way more than 1.3B.

Today's financial post and HCG report says that over the past couple days, their deposits went down ~591 million to ~1.4B. (1.4B + .6 = 2B. Numbers check out, it is reasonable to think that since Dec 31 and the recent withdrawal, people withdrew about .5B over 3+ months). If anything, my ever so not qualified self might even go to say that the credit loan is done as a precaution because they "foresee" that more people will be withdrawing. Even if they didn't take out the loan, based on these numbers, I don't actually think it would be that hard for them to find the cash to provide cash to customers withdrawing cash in the coming future. Given the small % cash and deposits payable on demand make up on the company's balance sheet, it's far from the worst case scenario IF we can't pay back those withdrawals, BUT it doesn't even look bad right now.

fun calculation: # of shares = market cap / current price = 375.57M / 5.99 = 62.69 M

How much HCG would have to pay if they maintained the current dividend = 62.69M x 0.26 = 16.3 million

If I've convinced you that the cash loan and mass withdrawals are an issue, but aren't THAT bad, considering where the company's big money transactions are really at (mortgage payments, GICs etc), they would only need 16.3 M to pay the "crazy" 17% dividend.

I'm just saying, based on the numbers, it's not impossible. I'm not saying they will do it, and I'm not saying they should do it. (If they did it it would be a huge show of confidence). However, I am working off of end of 2016 numbers after all and don't know what has changed. HCG did say today that taking the 2B loan would affect earnings and "would leave the Company unable to meet previously announced financial targets." This is so vague. What do they mean? EPS changes this quarter because they are taking on more liability? Is that it? Is it that far fetched to maintain the dividend a bit to pull buyers back in?

On concerns with bad mortgage loans and its effect on earnings

If fear-induced cash withdrawal isn't the main issue here, it must be the bad mortgages no? Writing "bad" mortgage/loans means more delinquincies/writeoffs, etc. and higher debt that is not matched by mortgage payments from homeowners. I pretty much ignored all the fear and HISA story, and my concern is still whether HCG has given out bad loans. The second most significant piece of news today (first being HCG's announcement on the 2B loan) is Genworth MIC helping a bro out after the market closed, saying that "we have insured HCG mortgages (a small amount, 1%, please don't short sell me)", and the rate of HCG delinquencies since our last report (Dec 31, 2016) is actually lower than our average delinquincy rate" (average is currently ~0.26%).

(Genworth MIC didn't actually say what % of HCG mortgages they cover, but in terms of market cap they are way bigger than HCG even before the stock price drop)

So why are people who don't have insider information selling if not from fear?

On management

There is no doubt, that misleading your investors is a big bad no. However, the most important thing I see about this whole situation is that, even though they tried to keep it hush, management actually did initiate Project Trillium to initiate their own internal investigation and to remove these bad brokers before being whistleblown, before any pressure from having investors know, and before having the public spotlight shown on them.

I'm sure people will find flaws in my arguments, but they are welcomed. I just wanted to add something myself because most of what I saw were BNN, fool.ca, bloomberg, RFD speculation, or RFDers who did their research but didn't spill details that I missed which I hope to spark discussion with this post.
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You should still post in the HCG thread
hcg-t-home-capital-group-1779153/54/

all I can say is Market can stay irrational longer than we can stay solvent

My reply from there re: impact on EPS. Honestly I'm sure everyone would take the $3.5/share decrease as long as HCG can stabilize... it dropped $11 today...geez
jerryhung wrote:
Apr 26th, 2017 3:16 pm
TD Flash Note
- loan is very prohibitive/severe liquidity pressure
- fully drawn $2B will cost $3.48/share, half drawn $2.61 share
- suspects OSFI is very involved
- As of Q4/16, book value $25.12, tangible book value $23.23
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jerryhung wrote:
Apr 26th, 2017 11:16 pm
You should still post in the HCG thread
hcg-t-home-capital-group-1779153/54/

all I can say is Market can stay irrational longer than we can stay solvent

My reply from there re: impact on EPS. Honestly I'm sure everyone would take the $3.5/share decrease as long as HCG can stabilize... it dropped $11 today...geez
hmm. that's more information that supports a dividend cut. Not sure what a flash note is, but can you give me the source for that please?

Also, based on the Dec 2016 numbers if mortgages aren't duds (which again I emphasize may be completely different by the May 3 report), the 2 Bil loan is be enough for HCG to pay their HISAs if all customers withdrew to 0, and have enough to buy back every single market share that currently makes up the <$400 Mil current market cap

edit: typo
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Probably not the best option for long-term HCG shareholders...but wouldn't a wind-down/sale of the existing loan portfolio be the best course of action to stop the contagion risk?

No way they can continue to fund new originations...might as well liquidate
:idea: :) :lol: :razz: :D
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charliebrown wrote:
Apr 26th, 2017 11:35 pm
Probably not the best option for long-term HCG shareholders...but wouldn't a wind-down/sale of the existing loan portfolio be the best course of action to stop the contagion risk?

No way they can continue to fund new originations...might as well liquidate
Thanks for the reply. Could you explain more specifically what a contagion risk would entail (worst case scenario)
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rodbarc wrote:
Oct 28th, 2014 11:03 pm

Reading suggestions
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
Should these books be read in the order you put or random is fine?
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MoneyHypeMike wrote:
Apr 27th, 2017 2:00 pm
Should these books be read in the order you put or random is fine?
I'd read them in the suggested order above. The first 2 lies the foundation regarding quality and temperament. How to think business alike. Buffett started his fortune applying Graham's strategies, and later incorporated Fisher's principle too. I think it's easier to follow this sequence.


Rod
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