Investing

Investing Idea - Dividend Growth

  • Last Updated:
  • Nov 22nd, 2017 2:06 pm
Tags:
None
[OP]
Deal Addict
User avatar
Dec 14, 2010
4308 posts
3262 upvotes
There have been lots of emotional comments and questions regarding Home Capital Group, which I own as well.

I continue to hold at the cost of having to sell them for nothing, as I evaluate them further. I plan to hold them until fundamentals deteriorate (cash flow dries up and/or dividends are cut), which we'll know very soon on their next earnings call. Sentiment caused this, not a weak balance sheet. But sentiment can potentially impair them permanently, as they need deposits to make money. Since sentiment is temporary, I'm waiting.

HCG has been worst stock performance since I started in 1998, but HCG represents only 3.5% of my investing port, and my investing port is 60% of my total port, so even if I sell it by zero, it's a very small loss to lock. Having built my port allocating equal weight to sectors really helped (but that means that I carry extra risks on other sectors, like the ones with just a few stocks per sector). Regarding the recent events with HCG, it will not change my strategy to buy. Other mistakes will be made along the way, but since there are more sucesses than mistakes, it works out well in the long term. However, I will incorporate a new rule to sell. When to sell is the most challenging decision. I've never sold on fraud allegations, since I've always been successful deciding on numbers instead of news. However, fraud is serious and allegations don't happen often. Reputation is paramount to partner with management, and if OSC (or equivalent in US) is challenging them with such, then that should be the selling signal. So it will be for me moving forward. This was the best example of underestimating what reputation damage can do to a business.

For now, I want to see how they will react and adapt. Maybe they won't survive. But since I didn't exit on the first allegations, I will stay until the end. Not much point selling now anyway. Their balance sheet is good, but cash flow is in jeorpady. I expect dividends to be eliminated on the next earnings call. That will confirm that they no longer meet my goals and I'll exit when that happens.

They always had a stellar record with earnings and dividend growth (which is why I decided to partner with them). But dividends comes from cash (not earnings). In 2008, and in the latest real estate crash in the 90s in Canada, earnings were affected, but never cash flow. Therefore, dividends kept coming. Same with IBM (declining revenue and earnings for years), yet they keep increasing dividends because cash flow allows so. Or Corus, which pays a healthy 8.5% dividend (11% not too long ago), because cash flow supports it. But for HCG, with less deposits, it impacts their cash flow. Therefore, it impacts their ability to pay dividends. That has nothing to do with their healthy balance sheet and earnings affected by this loan. They could even increase earnings - cash flow is the ultimate financial health check, and what makes a difference for the company to survive during crisis or be permanently impaired. Therefore, I fully expect dividends to be cut or be totally eliminated. The market might respond well (company is reacting to grow again), but it might respond harshly, adding further fuel that they are fighting for survival. Although management reputation is tarnished, that's the best I can go with for my decisions - not somebody's opinion. My base for partnership has always been based on trusting management, so I'll stick with that until they prove that I shouldn't do any longer. Therefore, I'll wait and see what happens on the next earnings call. And moving forward, further fraud investigation allegation by regulators will be added to my rules to exit, as I should have done it before.

It's a shame that a company with such stellar record on earnings, cash flow and dividends all these years ends up this way. But reputation is one of the biggest company's asset, and little care was shown with this precious asset.

I firmly believe that companies will become more aware of reputation and its impact. A few years ago, Maple Leaf had a huge recall due to Listeriosis outbreak in their plants, and being transparent with consumers and quickly responding to not tarnish reputation is what made a difference in Maple Leaf to recover, as opposed to other companies that took allegations lightly and didn`t recover (like Peanut Corporation of America, when there was a huge recall and fatalities when salmonella broke out on PCA plants and ended up filing for bankrupcy shortly after). The recent fiasco reputation with United cost them $12MM setlled before courts. A similar incident took place with American Airlines a week after, but they were much quicker to respond and backlash from public were more contained. Or Wells Fargo attitude of firing the little guys that were told to falsify information, which cost the CEO his job once that surfaced the news. Reputation can bring a business down, and Buffett words can't be stressed enough: "Reputation takes years to build and seconds to destroy". Like any major event, new regulations and safer controls will come from that. But humans are humans, and the bad ones will always find ways to circunvent the system a take actions that will reflect poorly on their business and themselves. Criativity has no limits. There's a reason to why most of CEOs can psycologically classified as psycopaths. A successul CEO has to be a good manipulator. That's also why Buffett always suggests to never fall in love with a stock. It's hard to take rational decisions when emotionally attached to a stock, company or decision to why that was bought. Investing is a business, losses are part of it. There will be others. Accepting the fact that mistakes will be made help with that. And for these reasons, to me, is why a diversified portfolio, made of investing and trading strategies is so important. And a good temperament test is to look that you're down on a stock by 60%, shrug and move on. Keep the strategy that is working so far (there will be other losses, it doesn't mean the strategy is weak) and don't let that distract from the things that matter.



Rod
Everything about my Investing and automated Trading strategies to boost your income: https://boostyourincome.ca
Deal Expert
User avatar
Sep 19, 2004
20319 posts
3097 upvotes
Waterloo
I hear you Rod, thanks for sharing
I'd actually consider dividend cut a "good thing" since they need every $ to survive (and hopefuly get better), who knows... it's irresponsible for management to pay 22%~15% interest and still pay out dividends


These were not-yet-proven allegations and minimum penalities (millions only?), I am shocked it caused such big impact (probably b/c of F.I. exiting, causing spiral effect/sellings)

WFC did worse and PROVEN (HCG did not create fake mortgages nor deposits)
SNC survived, VW emission scandal is much worse & costly - many survived and did better, but obviously many did NOT either

At this point, HCG is do-or-die/YOLO holding now
Not even sure if one can get a "real" lesson out of this.... a good company can go poof just because of FEAR.
Which Credit Cards to sign up? >> Jerry's List of Credit Cards with $200+ Welcome bonus/Aeroplan & AMEX Churning FAQ
AMEX Personal 60K || Business Platinum 75K || Biz Gold 40K || SPG 25K
Deal Addict
User avatar
Dec 8, 2010
2016 posts
630 upvotes
I'm really curious to see what'll happen with EQB now, honestly.

It is totally "unfair" what's happened to HCG. The headline on CBC made me laugh - "Investors punish HCG" - umm, no, actually it's the investors who are being punished; the short traders are reaping the rewards.
Member
Feb 26, 2017
303 posts
86 upvotes
I sold HCG on Friday as I just didn't see much upside to continuing to hold the stock. I think in the end due to their cash flow issues they will need to sell and it then becomes a question of what they are worth. I could see either rebounding to the low teens or dropping further.

Its ended up being my largest loss so far (both as a percentage and as a net loss). Overall a 83% loss on what had been a full position when I bought in 2015. Its not a great feeling at the moment and now that I'm out I need to stop reading that HCG thread :). In the end I'm not sure there is any big lesson to learn with this one. I may sell something sooner in the future when there are waves of bad news, but I don't want to change how I invest as I think in most cases the best course of action still is to hold...
Deal Addict
Nov 9, 2013
1908 posts
666 upvotes
Edmonton, AB
Chance7652 wrote:
Apr 30th, 2017 12:17 pm
I sold HCG on Friday as I just didn't see much upside to continuing to hold the stock. I think in the end due to their cash flow issues they will need to sell and it then becomes a question of what they are worth. I could see either rebounding to the low teens or dropping further.

Its ended up being my largest loss so far (both as a percentage and as a net loss). Overall a 83% loss on what had been a full position when I bought in 2015. Its not a great feeling at the moment and now that I'm out I need to stop reading that HCG thread :). In the end I'm not sure there is any big lesson to learn with this one. I may sell something sooner in the future when there are waves of bad news, but I don't want to change how I invest as I think in most cases the best course of action still is to hold...
There is always a lesson to be learned from ones mistakes! I am in the same position as you, except I continue to hold HCG.

Some lessons I've learned from this are:

- Never under-estimate how emotions can affect price
- Just because a company can consistently grow dividends and earnings doesn't mean it has a moat
- A consistently high ROE does not imply a moat
- The assets of a financials company are often opaque and hard to objectively analyze
- Just because something is cheap doesn't mean I should automatically buy more
- I can't be complacent and "accept" poor management
- I suffer from over confidence
Member
Feb 26, 2017
303 posts
86 upvotes
treva84 wrote:
Apr 30th, 2017 12:30 pm
There is always a lesson to be learned from ones mistakes! I am in the same position as you, except I continue to hold HCG.

Some lessons I've learned from this are:

- Never under-estimate how emotions can affect price
- Just because a company can consistently grow dividends and earnings doesn't mean it has a moat
- A consistently high ROE does not imply a moat
- The assets of a financials company are often opaque and hard to objectively analyze
- Just because something is cheap doesn't mean I should automatically buy more
- I can't be complacent and "accept" poor management
- I suffer from over confidence
That's good feedback. Overall I should probably tweak my approach a bit after HCG. I also don't want to over correct because of this.

Another thing to consider is that small cap and smaller mid cap stocks carry more risk than the big blue chip stocks. My two other small cap stocks when I think about don't look like own forever stocks. I'll probably be setting a price point to take some profits by either cutting back on my holdings or selling.
Member
Sep 4, 2009
303 posts
51 upvotes
At this point, I would like to see how HCG management is going to address all the concerns and allegations surrounding them, presumably in the next earnings call. There can be unforeseen variables that can be out of the control of the company. (ie: the drug tampering of Tylenol in Chicago back in 1982, and how J&J handled the crisis beautifully and went on blossom even more to the powerhouse it is today)

That said, allegations of fraud is in a pretty special and unique category and does not seem to really fall into that 'unforseen' area. It is also pretty grey area and unfortunately the perception of fraud is probably just as bad as if fraud actually occurred.

How HCG is going take accountability and responsibility towards mitigating and prevent such factors in the future says a lot about the company itself. I really hope they do not play the 'blame' card. This was a very big turn off and deciding factor for me to selling Blackberry stock a few years ago after their CEO back then, Thorsten Heins, started blaming poor sales on obscure things like the Venezuelan dollar for dropping, instead of just admitting that the BB platform was not up to snub with Android and IOS.
Deal Addict
May 18, 2015
1111 posts
259 upvotes
Ottawa,Ont
rodbarc wrote:
Apr 30th, 2017 11:21 am
There have been lots of emotional comments and questions regarding Home Capital Group, which I own as well.

I continue to hold at the cost of having to sell them for nothing, as I evaluate them further. I plan to hold them until fundamentals deteriorate (cash flow dries up and/or dividends are cut), which we'll know very soon on their next earnings call. Sentiment caused this, not a weak balance sheet. But sentiment can potentially impair them permanently, as they need deposits to make money. Since sentiment is temporary, I'm waiting.

HCG has been worst stock performance since I started in 1998, but HCG represents only 3.5% of my investing port, and my investing port is 60% of my total port, so even if I sell it by zero, it's a very small loss to lock. Having built my port allocating equal weight to sectors really helped (but that means that I carry extra risks on other sectors, like the ones with just a few stocks per sector). Regarding the recent events with HCG, it will not change my strategy to buy. Other mistakes will be made along the way, but since there are more sucesses than mistakes, it works out well in the long term. However, I will incorporate a new rule to sell. When to sell is the most challenging decision. I've never sold on fraud allegations, since I've always been successful deciding on numbers instead of news. However, fraud is serious and allegations don't happen often. Reputation is paramount to partner with management, and if OSC (or equivalent in US) is challenging them with such, then that should be the selling signal. So it will be for me moving forward. This was the best example of underestimating what reputation damage can do to a business.

For now, I want to see how they will react and adapt. Maybe they won't survive. But since I didn't exit on the first allegations, I will stay until the end. Not much point selling now anyway. Their balance sheet is good, but cash flow is in jeorpady. I expect dividends to be eliminated on the next earnings call. That will confirm that they no longer meet my goals and I'll exit when that happens.

They always had a stellar record with earnings and dividend growth (which is why I decided to partner with them). But dividends comes from cash (not earnings). In 2008, and in the latest real estate crash in the 90s in Canada, earnings were affected, but never cash flow. Therefore, dividends kept coming. Same with IBM (declining revenue and earnings for years), yet they keep increasing dividends because cash flow allows so. Or Corus, which pays a healthy 8.5% dividend (11% not too long ago), because cash flow supports it. But for HCG, with less deposits, it impacts their cash flow. Therefore, it impacts their ability to pay dividends. That has nothing to do with their healthy balance sheet and earnings affected by this loan. They could even increase earnings - cash flow is the ultimate financial health check, and what makes a difference for the company to survive during crisis or be permanently impaired. Therefore, I fully expect dividends to be cut or be totally eliminated. The market might respond well (company is reacting to grow again), but it might respond harshly, adding further fuel that they are fighting for survival. Although management reputation is tarnished, that's the best I can go with for my decisions - not somebody's opinion. My base for partnership has always been based on trusting management, so I'll stick with that until they prove that I shouldn't do any longer. Therefore, I'll wait and see what happens on the next earnings call. And moving forward, further fraud investigation allegation by regulators will be added to my rules to exit, as I should have done it before.

It's a shame that a company with such stellar record on earnings, cash flow and dividends all these years ends up this way. But reputation is one of the biggest company's asset, and little care was shown with this precious asset.

I firmly believe that companies will become more aware of reputation and its impact. A few years ago, Maple Leaf had a huge recall due to Listeriosis outbreak in their plants, and being transparent with consumers and quickly responding to not tarnish reputation is what made a difference in Maple Leaf to recover, as opposed to other companies that took allegations lightly and didn`t recover (like Peanut Corporation of America, when there was a huge recall and fatalities when salmonella broke out on PCA plants and ended up filing for bankrupcy shortly after). The recent fiasco reputation with United cost them $12MM setlled before courts. A similar incident took place with American Airlines a week after, but they were much quicker to respond and backlash from public were more contained. Or Wells Fargo attitude of firing the little guys that were told to falsify information, which cost the CEO his job once that surfaced the news. Reputation can bring a business down, and Buffett words can't be stressed enough: "Reputation takes years to build and seconds to destroy". Like any major event, new regulations and safer controls will come from that. But humans are humans, and the bad ones will always find ways to circunvent the system a take actions that will reflect poorly on their business and themselves. Criativity has no limits. There's a reason to why most of CEOs can psycologically classified as psycopaths. A successul CEO has to be a good manipulator. That's also why Buffett always suggests to never fall in love with a stock. It's hard to take rational decisions when emotionally attached to a stock, company or decision to why that was bought. Investing is a business, losses are part of it. There will be others. Accepting the fact that mistakes will be made help with that. And for these reasons, to me, is why a diversified portfolio, made of investing and trading strategies is so important. And a good temperament test is to look that you're down on a stock by 60%, shrug and move on. Keep the strategy that is working so far (there will be other losses, it doesn't mean the strategy is weak) and don't let that distract from the things that matter.



Rod
Any purchases for May?
[OP]
Deal Addict
User avatar
Dec 14, 2010
4308 posts
3262 upvotes
nikels21 wrote:
Apr 30th, 2017 7:14 pm
Any purchases for May?
I'm away until next weekend - I'll post my purchases then.


Rod
Everything about my Investing and automated Trading strategies to boost your income: https://boostyourincome.ca
Deal Addict
User avatar
Apr 12, 2012
1449 posts
299 upvotes
Toronto
charliebrown wrote:
May 1st, 2017 7:26 am
EQB numbers are out

Key points
$75 mil withdrawals a day after Wed
$2 bil standby facility at much more manageable rates
10% divy increase

http://www.newswire.ca/news-releases/eq ... 76573.html
Yes, definitely a lot more manageable than the HCG one. Pretty good deal.

"Obtained a letter of commitment for a two-year, $2.0 billion secured backstop funding facility from a syndicate of Canadian banks, including The Toronto-Dominion Bank, CIBC, and National Bank ("the Banks"). The terms of the facility include a 0.75% commitment fee, a 0.50% standby charge on any unused portion of the facility, and an interest rate on the drawn portion of the facility equal to the Banks' cost of funds plus 1.25%. This interest rate is approximately 60 basis points over our GIC costs and competitive with the spreads on our most recent deposit note issuance, and as such will allow us to continue growing profitably."
Deal Addict
User avatar
Apr 12, 2012
1449 posts
299 upvotes
Toronto
charliebrown wrote:
May 1st, 2017 7:10 am
PPL acquiring VSN (Veresen)
http://www.newswire.ca/news-releases/pe ... 72383.html
Some highlights: Pembina is offering to acquire all of the outstanding Veresen common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash. Assuming full pro-ration, each Veresen shareholder would receive $4.8494 in cash and 0.3172 of a common share of Pembina for each Veresen common share.

And, since this thread is about Dividend Growth: "Combined, these factors give us confidence to increase our dividend by 5.9 percent upon close of the Transaction."
So PPL aims to rewards shareholders by raising their dividend once closed. It is expected to close late in the third quarter or early in the fourth quarter of 2017.
Deal Addict
User avatar
Dec 21, 2005
4971 posts
309 upvotes
Markham
zobi123 wrote:
May 1st, 2017 8:50 am
Some highlights: Pembina is offering to acquire all of the outstanding Veresen common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash. Assuming full pro-ration, each Veresen shareholder would receive $4.8494 in cash and 0.3172 of a common share of Pembina for each Veresen common share.

And, since this thread is about Dividend Growth: "Combined, these factors give us confidence to increase our dividend by 5.9 percent upon close of the Transaction."
So PPL aims to rewards shareholders by raising their dividend once closed. It is expected to close late in the third quarter or early in the fourth quarter of 2017.
Was curious why VSN dropped from $16.xx to low $15 towards the end of the week...I attributed it to fund liquidation with the HCG fiasco. But maybe it was just to make the acquisition premium look better for today's news
:idea: :) :lol: :razz: :D
Deal Expert
User avatar
Sep 19, 2004
20319 posts
3097 upvotes
Waterloo
charliebrown wrote:
May 1st, 2017 9:05 am
Was curious why VSN dropped from $16.xx to low $15 towards the end of the week...I attributed it to fund liquidation with the HCG fiasco. But maybe it was just to make the acquisition premium look better for today's news
Same here, and I considered entering at $15 too... guess I'll never see that again. Bid/Ask ~$17.8 now
Which Credit Cards to sign up? >> Jerry's List of Credit Cards with $200+ Welcome bonus/Aeroplan & AMEX Churning FAQ
AMEX Personal 60K || Business Platinum 75K || Biz Gold 40K || SPG 25K

Top