Investing

Investing Idea - Dividend Growth

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  • Dec 11th, 2017 10:37 am
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Dec 6, 2006
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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.

Image
Do you think if it's the peak of the cycle for the pipelines or can the SP still have room to go up?
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Nov 9, 2013
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boyohboy wrote:
Sep 27th, 2017 10:34 am
Do you think if it's the peak of the cycle for the pipelines or can the SP still have room to go up?
Well, I guess it depends on what metrics you look at. If you're looking at price then for PPL it would be nearing a peak, at least compared to the "bottom" in 2016 (where PPL was ~$28.00).

The issue though is that these companies are dynamic and their fundamentals are changing with time - for example PPL is acquiring VSN and other pipelines have done their own M&A as well (i.e. ENB merging with Spectra). This leads to ever growing dividends and cash flow, which compound with time, driving returns higher over the long term.

If buy simply to cyclically trade (the antithesis of this thread) then it would be a good idea to start thinking about how much higher oil will go and when you would want to exit. If you are a buy and hold investor (the thesis of this thread and this is what I myself do) then doing nothing and ignoring price is probably best.
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treva84 wrote:
Sep 27th, 2017 11:04 am
Well, I guess it depends on what metrics you look at. If you're looking at price then for PPL it would be nearing a peak, at least compared to the "bottom" in 2016 (where PPL was ~$28.00).

The issue though is that these companies are dynamic and their fundamentals are changing with time - for example PPL is acquiring VSN and other pipelines have done their own M&A as well (i.e. ENB merging with Spectra). This leads to ever growing dividends and cash flow, which compound with time, driving returns higher over the long term.

If buy simply to cyclically trade (the antithesis of this thread) then it would be a good idea to start thinking about how much higher oil will go and when you would want to exit. If you are a buy and hold investor (the thesis of this thread and this is what I myself do) then doing nothing and ignoring price is probably best.
Yes I'm buy and hold, at least for this port, but I'd still want to consider the cyclical nature. Reason simply being that I have limited free fund to buy more stocks. So I have to narrow down to a few, for each purchase period. If a pipeline is at/near cyclical peak, it may be better off to buy another sector, or different stock in the same sector for me.
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boyohboy wrote:
Sep 27th, 2017 11:29 am
Yes I'm buy and hold, at least for this port, but I'd still want to consider the cyclical nature. Reason simply being that I have limited free fund to buy more stocks. So I have to narrow down to a few, for each purchase period. If a pipeline is at/near cyclical peak, it may be better off to buy another sector, or different stock in the same sector for me.
For what it's worth, I've been buying pipelines earlier this summer (specifically ENB) because I think they are a great value from the cash flow perspective.

The other thing is it's easy to spot peaks and valleys in retrospect and it's very hard to do so in real time. Part of the price movements are related to the changes in the price of oil which is very difficult to predict.

If PPL meets your forward return hurdle then buy it, ignoring the cycle. If the price drops in the short term does it really matter, if you're not selling anyways? Using ENB as an example (just because I am more familiar with it than PPL) the current yield is 4.8-5%. Factor in 10% dividend growth and you have ~ 15% forward returns, just from dividends alone. As cash flow rises and yields rise chances are prices will rise as well. Even if price remains the same, assuming the dividend grows 15% forward returns are pretty good.

Looking into PPL, it's historical dividend growth rate over the last 10 years has been 3.32% annualized. I'm not sure what their forward target is, but if they keep up this growth and you buy today you're ball parking ~ 8% return, just in dividends alone (so independent of price cyclicality). If you feel you can get better somewhere else than feel free to put your money there.
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treva84 wrote:
Sep 27th, 2017 12:29 pm
For what it's worth, I've been buying pipelines earlier this summer (specifically ENB) because I think they are a great value from the cash flow perspective.
...
Not disagreeing at all.

Just that so many stocks there are to buy, and so little money :) I *have to* make a choice among the stocks. So yeah long term the cycles don't matter much, but I have select a few stocks anyway. Even if I only get the cycle "timing" 55% correct (say using your comment about P/E), it's still slightly better off, right? :)
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boyohboy wrote:
Sep 27th, 2017 3:35 pm
Not disagreeing at all.

Just that so many stocks there are to buy, and so little money :) I *have to* make a choice among the stocks. So yeah long term the cycles don't matter much, but I have select a few stocks anyway. Even if I only get the cycle "timing" 55% correct (say using your comment about P/E), it's still slightly better off, right? :)
You do raise a fair point - "investment is the discipline of relative selection".
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Any though on HLF lately? Thinking of adding more...
Jr. Member
Apr 8, 2017
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Rod

Following the success MDA had in accessing the US market and the completed acquisition of DG, would you think of adding more at these levels?
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Jun 26, 2006
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Walgreens price getting more attractive with rumors of Amazon entering the pharmaceutical market
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SLX4 wrote:
Oct 9th, 2017 11:03 am
Walgreens price getting more attractive with rumors of Amazon entering the pharmaceutical market
Yeah I'd rather bet Walgreens than CVS whose EPS growth is much slower.
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cn_habs wrote:
Oct 10th, 2017 9:39 pm
Yeah I'd rather bet Walgreens than CVS whose EPS growth is much slower.
If you look at what is driving WBA's Sales / EPS growth it's non pharmacy items. They are basically becoming a better retailer, trying to get people to buy other items while they await their prescriptions. They are doing a good job, but it's also not their legacy business and highly susceptible to competition.

CVS on the other hand, while less exciting, is focusing more on it's legacy business which I think has a strong moat (stronger than WBAs). Less growth but I think it's also less susceptible to disruption. It also has less debt than WBA and trades at a more attractive valuation, although I would agree that both are undervalued.
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ShuttleBoy wrote:
Oct 8th, 2017 12:37 pm
Rod

Following the success MDA had in accessing the US market and the completed acquisition of DG, would you think of adding more at these levels?
I've updated the list, as there are no more MDA - It has been renamed to Maxar Technologies (TSX:MAXR). I consider it undervalued, with good estimates to grow:

Image


MAXR has a good analyst coverage, and the consensus is aligned with the graph above: Now that MDA and DigitalGlobe combined to create Maxar Technologies, it enhances their business further, expanding its scale in satellite imagery, adding recurring data services revenue, and increasing exposure to US government programs. DigitalGlobe also adds $8B Enterprise Value to Maxar, and a high margin revenue stream. Upper management had some changes, as it's expected with these merging activities.

There are high expectations with Maxar now: According to NSR, the market for satellite earth observation and value-added services is expected to grow at an 8% 10-year CAGR and to be worth US$5.4 billion in 2025. Information products and data represents the majority of the market opportunity (67% of the total), while downstream segments such as big data analytics and value-added services presents as new opportunities to be explored. Market growth for earth observation data is driven mainly by Defense and intelligence demand. US global Defense spending for EO data has been growing at a 13% CAGR over the past five years, with the NGA being the single largest procurer of imagery to support Defense applications.

Maxar now will be able to have a balance regarding data and services versus hardware, which was the dominant business for MDA. According to one firm covering Maxar, with increasing scale in geospatial data services, MAXR will have the ability to pursue larger programs and address more complex mission requirements. The acquisition of DGI adds a roster of large commercial customers that leverage location-based satellite imagery, such as BP, Mapbox, Facebook, Apple, Google, Microsoft and Uber. More importantly, DGI increases MDA’s exposure to US government space programs. The US government is the largest consumer of space-related services with over $10 billion in opportunities. DigitalGlobe will expand MDA's access to the US government, with the company providing 90% of the foundational imagery to the US government through 80 contract vehicles. Pro-forma MDA’s exposure to data and services increases from 7% of total revenue to 25% of total revenue.

Post-acquisition MDA will enjoy a leading market share in the earth observation market, 54% up from 9%. The market is somewhat of a duopoly with Airbus having 20% and the rest of the market fragmented amongst smaller players and new entrants. MAXR will be uniquely positioned in the market as the only operator of large satellites that offer both optical and radar capabilities with very high resolution and high revisit rates.

I believe this acquisition will bring significant advantages to MAXR, which is currently undervalued in my opinion.


Rod
Everything about my Investing and automated Trading strategies to boost your income: https://boostyourincome.ca
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My website went live. Below you'll find a presentation for a great investing book by Frederik Vanhaverbeke, and how effective investment philosophy and investment intelligence are consistent among the investors presented below. Also, it's paramount the importance of behavioral finance to develop temperament.

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Rod
Everything about my Investing and automated Trading strategies to boost your income: https://boostyourincome.ca

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