Investing

Investing Idea - Dividend Growth

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  • Oct 20th, 2017 11:04 am
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Jan 18, 2007
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Jhopes wrote:
Sep 19th, 2017 5:43 pm
Any thoughts on CDZ?
Some of the criticism I read is the "aristocrats" dividend index requires 25 consecutive years of dividends. This is what SPY etf delivers. CDZ on the other hand is 5 years only I think, so the "aristocrats" is misleading.

I was recently looking at DGRO as well. Lower MER than CDZ. Although I realize they track different indices and markets.

Rod, what do you think of those ETFs for those of us that don't have the time, skill to pick individual stocks? Do you keep track of how you fared against indices and dividend growth indices with your individual picks?
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Dec 8, 2013
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jerryhung wrote:
Sep 20th, 2017 12:00 pm
CJR.B got a downgrade ($13 -> $12.5) by National Bank

-2.3% to $13.1x
Time to load up more since last Friday's -3% also..
Any idea how that played out? I mean did national bank clients dump it Friday, now that downgrade is public, everyone else has a chance to bail?

I already own too much CJR.B but will buy more if it moves below $12.60'ish. Owned it for a year, my cost base is 10.88 on this stock, been happy with it's performance.
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Mar 19, 2009
64 posts
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Scarborough
jerryhung wrote:
Sep 20th, 2017 12:00 pm
CJR.B got a downgrade ($13 -> $12.5) by National Bank

-2.3% to $13.1x
Time to load up more since last Friday's -3% also..
quick question, whats the logic behind trying to load up now vs waiting till it hits 12.50. Id imagine there is still some selling going to happen. BTW im looking start a position on CJR.B. Am i late to the party ?
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Jan 20, 2016
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squall_13ca wrote:
Sep 20th, 2017 3:45 pm
quick question, whats the logic behind trying to load up now vs waiting till it hits 12.50. Id imagine there is still some selling going to happen. BTW im looking start a position on CJR.B. Am i late to the party ?
There is no "gold" numbers, especially if you are for dividends, not for trading. 13.xx was fairly priced imo from DI prospective, so current price is good to start or add as well, but other factors still applicable (do not overconcetrate etc)
I had positions bought at 10.x, 12.x, 13.x...good % but not a "blue chip" IMO so thread accordingly
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Jun 14, 2016
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Gonna see if I can nab some CJR.B for $12.50 as well.
[OP]
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September 2017 purchases:

On the Canadian side, I'll be adding more OpenText. The stock is trading is what I believe to be fair valuation, and earnings and dividend growth estimates are looking decent:

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There is little institutional coverage, so not much of market consensus, but the firms covering this company seems to have a good understanding of their business:

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OTEX's FY17 Annual Report just came out, and the results were very good. Total annual recurring revenue has been growing steady and they will continue to deploy their excess free cash flow to make acquisitions. OTEX has a successful track record of 57 closed acquisitions. In FY17, OTEX focused on integrating five acquisitions, ANX, HP CEM, Recommind, HP CCM, and the enterprise content division of Dell-EMC (ECD). The acquisition of ECD was the largest in OpenText’s history, transforming the Company into being the #1 in the ECM space, with a strengthened competitive position in a number of markets (healthcare, life sciences and public sector). More acquisitions will continue in FY18. This goes on top of generating crossselling opportunities (managed services, analytics, etc.), like OTEX's predictive analytics / AI product, Magellan, which is now shipping. OTEX is already the largest independent EIM software vendor. OTEX has a broad range of EIM solutions which it sells both directly and through a number of partnership arrangements, including a global reseller agreement with SAP.



I will also be adding more Westjet. Considering how airlines can be volatile, I think WJA is handing it well and earnings and dividend growth estimates are also looking good:

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Earnings were severely affected last year and somewhat this year due to the crisis in Alberta, and I like how WJA was able to keep dividends steady (supported by a healthy cash flow), and estimates are for a dividend growth next year:

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There is a large number of analysts covering WJA, so that forms a better market consensus - however, this is a very volatile industry, so the reliability on the results are not great:

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WJA has been trying a number of growth initiatives, but the challenges caused some headwinds. Alberta recovery will eventually catch up, since that region has always brought above-average profit for WJA. Corporate guidance suggested that the weaker-than-normal (but still decent) 9.8% ROIC is a bottom, and the expectation is that it recovers to the historical range of 13% to 16%. Westjet expects growth through international expansion - their Boeing 767 is in service and they will purchase new Boeing 787 aircrafts. Meanwhile, WJA is expanding its regional arm, Encore, to obtain a presence on underserved routes - which has been very successful since introduced in 2013. Lastly, WJA is launching an ultra-low-cost arm that plans to begin operations by mid-2018, using 10 high-density Boeing 737-800s. WJA has an excellent tracking record of generating operating profits in such volatile industry, so I trust management that this execution level will continue. This might take time, as competition of Air Canada is increasing (as they're getting better in improving their cost control), and these expansions are capital intensive, which affects ROIC. Nevertheless, I believe this is a solid company trading at a decent valuation, operating on a volatile industry that in the end is a duopoly in Canada.


On the US side, I'll be initiating a position with Walgreens. The company was overvalued, and since price follows earnings (and earnings and dividends are estimated to grow), I believe it's currently trading at a fair valuation:

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There is a high number of analysts covering this business, which gives me confidence for a reliable market consensus:

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I know we keep hearing that "retail is dead", but WBA has been one of the most successful retail operators since its founding in 1901 and has remained a
major player within the pharmaceutical supply chain for many decades. The firm processed approximately 20% of total U.S. prescriptions during fiscal 2017, which makes
it one of the largest retail pharmacies. With the acquisition of Europe-based Alliance Boots, the firm is now a premier global retail powerhouse. However, competition is fierce and heavy dependence on non-pharmaceutical products has hurt ROICs for some time. I like how management is reacting and adapting: WBA is in the process of closing the acquisition of half of Rite Aid's store fleet, which will solidify it as the largest retail pharmacy chain in the U.S. This acquisition will not only increase its volume and geographic reach, but also materially augment its global generic purchasing volume. WBA will also be better-positioned to build on its preferred pharmacy strategy, although some analysts disagree with management direction of pushing the model to increase its nonpharmaceutical foot print. In the end, earnings and cash flow are the metrics that I'm looking for, and considering the strong market consensus, it brings me confidence to partner with them for the income growth journey.


The other US company that I'll be partnering with is GE. Their shares were also overvalued, and have recently come to a better valuation:

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There is a decent market consensus, although the long term view has not always been aligned:

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In order to keep competitive the industrial sector, GE now operates in 7 core industry segments to "lead a digital industry era". GE keeps moving away from Finance with GE Capital, which I see as positive given the mess that it created in 2008; they are also stepping into the service world, which has been generating nice margins. Their push into predictive analytics will also generate synergies to fuel further growth.

Please note that the portfolio now features dividend increases for the current year for each of the holdings. I'll be updating this every year.

Canadian Portfolio Update:

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US Portfolio Update:
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Rod
Everything about my Investing and automated Trading strategies to boost your income: https://boostyourincome.ca
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PPL (Pembina) is back up, I see... I considered this one of my mistakes in selecting a Canadian dividend-stock because I purchased it at a higher P/E (~34.)

I am currently mixing investing in specific dividend companies, as well as indexing. For someone who's not quite seasoned at research, do you think it's fine to possibly sell it and convert it to my index funds?
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peanutz wrote:
Sep 25th, 2017 9:45 pm
PPL (Pembina) is back up, I see... I considered this one of my mistakes in selecting a Canadian dividend-stock because I purchased it at a higher P/E (~34.)
For cyclicals you want to buy at historically high P/E - this means earnings are down, which means it's near the bottom of a cycle. You want to sell it when the P/E is at a historical low, as this means earnings have recovered and it's near a cyclical high.

For example, looking retrospectively at peak oil in 2014 PPL's P/E was 10. You can see it spikes up to 52 last year (the bottom) and has recovered since.

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peanutz wrote:
Sep 25th, 2017 9:45 pm
PPL (Pembina) is back up, I see... I considered this one of my mistakes in selecting a Canadian dividend-stock because I purchased it at a higher P/E (~34.)

I am currently mixing investing in specific dividend companies, as well as indexing. For someone who's not quite seasoned at research, do you think it's fine to possibly sell it and convert it to my index funds?
You should not use P/E for a company like PPL, because P/E involves Earnings per share (EPS). And EPS is not a good metric for midstream companies due to high non-cash depreciation expenses, such as the capital intensity of building and maintaining all of its pipelines and terminals. Look how DD&A metric (depreciation, depletion and amortization expenses) impact earnings. Hence a better valuation metric for midstream companies are cash flow, precisely available cash flow from operations (ACFFO). It measures how much net cash the company is bringing in, minus any preferred dividends and maintenance capital. Therefore, it is a solid measure of how much cash flow the company has remaining to pay its dividend and to invest in growth projects.

Enterprise value to debt-adjusted cash flow, or EV/DACF is one of the most important metrics in the industry as it looks at a firm’s cash flow adjusted for capital structure. Oil and gas E&Ps tend to carry a fair amount of debt. Therefore, more traditional cash flow valuation metrics such as EBIDTDA/EV may not give an accurate picture of an E&P’s free cash flow. EV/DACF adjusts for financing by dividing EV by cash flows from operating activities and all finance charges, including interest expense, current income taxes and preferred shares.

To understand your situation, what was the goal in buying PPL? What is the goal in buying index or coverting PPL to index fund?


Rod
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treva84 wrote:
Sep 25th, 2017 10:23 pm
For cyclicals you want to buy at historically high P/E - this means earnings are down, which means it's near the bottom of a cycle. You want to sell it when the P/E is at a historical low, as this means earnings have recovered and it's near a cyclical high.

For example, looking retrospectively at peak oil in 2014 PPL's P/E was 10. You can see it spikes up to 52 last year (the bottom) and has recovered since.
Thank you for helping me to understand the picture a little better. I'm actually a little more intimidated because it makes my simpler idea about investing, and valuation, more complicated, hehe.
rodbarc wrote:
Sep 26th, 2017 10:54 am
To understand your situation, what was the goal in buying PPL? What is the goal in buying index or converting PPL to index fund?
As usual, thank for you for your thoroughness. You've highlighted and reinforced me feeling like I'm over my head in meddling with cyclical/energy and I'm the type of simplistic investor who may be better off converting my PPL to index. I also have ENF but the P/E (duh, I'm still thinking this way because I'm a newbie) does not make me as nervous.

My goal in PPL and selecting my handful (~6) other dividend stocks was a long-term buy and hold strategy for (as the thread states), dividend growth, like buying parts of a pension or supplementary income bits at a time. I'm ok with ups and downs, but I obviously don't want the stock value to tank, either, and I figured a mid-stream (pipeline) business will be in reliable demand over time.

The indexes help me get easy diversification and because I understand the overall concept and strategy, they don't make me nervous so it gives me more confidence in staying the course. Even if they were to tank.
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peanutz wrote:
Sep 26th, 2017 11:14 am
Thank you for helping me to understand the picture a little better. I'm actually a little more intimidated because it makes my simpler idea about investing, and valuation, more complicated, hehe.
It's no problem - everyone has to start somewhere. No one just wakes up one day with all the investment knowledge in the world. Mistakes are a part of the process too and will always happen. Valuation is a difficult subject that takes lots of time and practice to get a feel for. Most of the time it's just an educated best guess anyways.
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Jun 20, 2008
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Hey Rod,

Any updated thoughts on HCG since the shareholders voted against Warren Buffet getting more shares of the company?

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