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Investing Idea - Dividend Growth

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  • Nov 22nd, 2017 2:06 pm
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Apr 23, 2017
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boyohboy wrote:
Oct 23rd, 2017 1:19 pm
Nor sure that has anything to with investing. You want to predict when society or human race may collapse or something.

2000 to 10,000 years.... are you serious? You realise this is "only" year 2017 and we mostly only live for 70-80 years right?
Yes I am serious. If you studied a little history you'd realize how insigificant our current government and social order are. There might only be a 5% chance of societal collapse during my lifetime, but it's still something I would be prudent to take into consideration. And that change might be closer than we think. If the government didn't or couldn't bail out the banks during the last crisis, for example, it could have triggered a major change.

The point I'm trying to make is simply that it's not wise to pretend that economic crashes are due only to stupidity of many investors and you're guaranteed to recover and to be successful if you buy more during uncertain times. That's simply not accurate.
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zinger9 wrote:
Oct 23rd, 2017 1:32 pm
Yes I am serious. If you studied a little history you'd realize how insigificant our current government and social order are. There might only be a 5% chance of societal collapse during my lifetime, but it's still something I would be prudent to take into consideration. And that change might be closer than we think. If the government didn't or couldn't bail out the banks during the last crisis, for example, it could have triggered a major change.

The point I'm trying to make is simply that it's not wise to pretend that economic crashes are due only to stupidity of many investors and you're guaranteed to recover and to be successful if you buy more during uncertain times. That's simply not accurate.
If thats what you want to predict... a collapse that will never recover... you should go look for discussion about building a underground bunker. I don't see how that's related to investing.
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zinger9 wrote:
Oct 23rd, 2017 1:32 pm
Yes I am serious. If you studied a little history you'd realize how insigificant our current government and social order are. There might only be a 5% chance of societal collapse during my lifetime, but it's still something I would be prudent to take into consideration. And that change might be closer than we think. If the government didn't or couldn't bail out the banks during the last crisis, for example, it could have triggered a major change.

The point I'm trying to make is simply that it's not wise to pretend that economic crashes are due only to stupidity of many investors and you're guaranteed to recover and to be successful if you buy more during uncertain times. That's simply not accurate.
I didn't mean to imply that an economic crash was due to stupidity of many investors. That might be true to a point for crashes based on news.

Crashes based on earnings are serious and we had many before. Some companies many recover from - look at Citibank, Bank of America or Lehman Brothers. Others endure it just fine, like Wells Fargo, that were affected by earnings and recovered, or Aflac Incorporated, which didn't have earnings affected at all, even though price tanked a lot - and then quickly recovered, because it was never justified. These are businesses on the financial sector, which was the core from the last crisis. Businesses from other sectors were not even affected, because their sectors were not affected (I'm talking about earnings, not stock price). But that's what a diversified portfolio is for. Any business that were financially healthy, with enough cash flow to support dividends and with "ins" higher than "outs" emerged stronger. This will repeat many times in the future.

You are talking about a low probability scenario, that hasn't happened in modern history and that's beyond our control or ability to predict. How do you take an event like that into consideration? Buying gold, amno and holding cash? Like I said earlier, nobody in 1890, 1914, 1940, 1970, 2001 or 2008 thought that "we're fine and we'll recover stronger". It's chaos and fear from all sides. There is no way to tell if this is the last event and it's medieval times from now on, or if it's just another blip in modern history. So I don't see how the efforts in evaluating it or preparing for it add any benefit (or how this is even done). If it's not in our control, we shouldn't think about it, because there's nothing we can do. I rather focus on each business and on the things that I can control - determining quality and valuation.

We don't know which companies will be able to recover after the next crash. So from an investing perspective, the best we can do is diversify into other sectors. And keep monitoring the results of our holdings to ensure they remain financially sound.


Rod
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kernelpatch wrote:
Oct 23rd, 2017 10:38 am
Hi Rod,

What are your thoughts on Hasbro (HAS). They took quite a tumble today.
I didn't look into specific events for today's tumble, but Hasbro is overvalued, and with earnings estimated to have a low growth, I expect the stock to drop closer to the blue line, which is better aligned with the historic multiples that the market has accept to pay to this business. There is even an argument that it might drop the orange line, since the company typically grows earnings at a higher pace than the estimated earnings for the next 2 years.

Image


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rodbarc wrote:
Oct 23rd, 2017 2:18 pm
I didn't look into specific events for today's tumble, but Hasbro is overvalued, and with earnings estimated to have a low growth, I expect the stock to drop closer to the blue line, which is better aligned with the historic multiples that the market has accept to pay to this business. There is even an argument that it might drop the orange line, since the company typically grows earnings at a higher pace than the estimated earnings for the next 2 years.

Image


Rod
I would take a hard pass with Hasbro. Kids just want another app for their iPad. Toys R Us going under. Physical toys are going to the way of Blockbuster
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llpresident wrote:
Oct 23rd, 2017 2:45 pm
I would take a hard pass with Hasbro. Kids just want another app for their iPad. Toys R Us going under. Physical toys are going to the way of Blockbuster
Funny that one more beats expectation (EPS, revenue) on QR, but fall hard (due to known already news)

P.s. however as mentioned before, that's looks more like return to the mean from overvalued stock (which was a good flyer over last 5y, maybe too good...)
P.s.s they are making not only toys but games, so unlike ToysRus, they have better chances to survive. Also, Amazon selling (their) toys ,not making them, so Hasbro will "just" need to work through different channel now.
Make the Trudeau drama teacher again!
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kernelpatch wrote:
Oct 23rd, 2017 4:06 pm
Thanks Rod. I guess will steer away from this particular company.
Earnings and dividends have been growing steady, including during the recession. I wouldn't say this is a bad company, but now it's just expensive to buy it.


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Rod - what's your take on BEI.UN. I've held it for a little bit and am down pretty big. Never realized it was one of your watchlist REITs.
Good value to average down?
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areyoukiddingme2k13 wrote:
Oct 23rd, 2017 5:51 pm
Rod - what's your take on BEI.UN. I've held it for a little bit and am down pretty big. Never realized it was one of your watchlist REITs.
Good value to average down?
BEI.UN entered on my probation list since they reported results last quarter. Therefore, I'm not adding more at this point, and will only consider adding after some fundamental metrics improve.

A combination of factors have been dragging BEI.UN's results: higher expenses, lower revenues and higher vacancy rates, which prevents management from increasing rents as they should.

I evaluate BEI.UN by NOI and AFFO, and both have been declining. I'm usually ok with that for a full business cycle. However, for the first time, guidance and consensus have distributions higher than AFFO, which is dangerous for the sustainability of dividends (management disclosed that distributions will be reviewed every quarter). They are liquid enough - their debt to market cap is 40%, they have a cash balance of $224 MM and an undraw credit facility of $199.7 MM. My calculation is that BEI.UN would need to provide about an additional $50 MM from their pocket until FY19 to continue the current distributions until then (AFFO is estimated to be higher than distributions after FY19). So that piece is easy to cover, although management might opt for a lower distribution to remain well liquid and once things improve, it will grow dividends again.

The positive side is that they have lots of development in place and room to grow occupancy, which should improve AFFO - but not at the pace that management is suggesting, since the market is skeptical on how quickly it might recover:

Image

For these reasons, I remain on the sideline. Fundamentals are weak, but the business is not in distress mode, and they have lots of cash to endure a prolonged period of challenges. Their next results are on November 14, and the earnings call on November 15. Let's see how it develops.


Rod
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heatx- wrote:
Oct 23rd, 2017 12:35 pm
Hi Rod,

Curious as to your investment strategy in relation to the watchlist.
How often would you look to add a company to it? Is there a reason for you to add companies given that you have 63 in your Canadian watchlist for example?
63 companies seem to be a lot of companies to monitor for a beginner investor like myself so just curious as to how to manage my own watchlist and if there is a need to add more to it if I have more than 50+ for example.

And correct me if I am wrong, you only move companies to probation when they cut or when fundamentals start to deteriorate? And completely remove them if they have decreasing earnings for a full business cycle?
I evaluate my watchlist at least once a year, and I usually come across potential companies maybe 3 or 4 times a year. When I find a potential candidate ,I add to another list, to be researched later.

Adding more companies simply serves the purpose of building a more resilient growing income stream. I'm not looking to add companies in sectors that has a good diversification already (like financials), but I am looking to add in sectors that I barely have players, such as materials or info tech.

If you're building your portfolio, start small and identify what is important to you. For me, it's reliability of growing income, and the way that I achieve that is through diversification. I started with a few companies on each sector. A watchlist simply checks that you did half of the required research (which is about passing a quality criteria, no need to revisit that again for at least a year), while when you're ready to buy it, you do the other half which is about valuation. There are no fixed rules regarding on how many companies one should be investing on, and my list also include growth companies and companies that carry more risks. I use a spreadsheet to keep track of the purchases, and have built my portfolio and watchlist on FAST Graphs, which I use for my research.

I move companies to the probation list when fundamentals deteriorate, dividends are cut or reduced and they have 4 recorded lower earnings results with estimates to remain lower for the next 1 or 2 years - so in a 5 or 6 year period, lower earnings results for every year. I sell them if fundamentals continues deteriorating steady or if earnings keep decreasing for a full business cycle. I might also sell a company that is in perfect conditions, but switched their model to be a growth company (as it might not align with my goals of dividend growth).

This is just one of many approaches, and each approach should be tailored to the individual's goal, so understand the pros and cons and adjust it accordingly so it can work for you according to your objectives.


Rod
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Rod, appreciate you going back a page to address my questions!
Now, when you mention 'come across', are there specific criteria in FAST Graphs/Portfolio123 that you screen for?
I know you mentioned 10 years of positive earnings growth but what if they have 1 bad year? Maybe during 2008 crisis, do you instantly rule them out?
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heatx- wrote:
Oct 24th, 2017 6:56 am
Rod, appreciate you going back a page to address my questions!
Now, when you mention 'come across', are there specific criteria in FAST Graphs/Portfolio123 that you screen for?
I know you mentioned 10 years of positive earnings growth but what if they have 1 bad year? Maybe during 2008 crisis, do you instantly rule them out?
Thanks, I try to respond to every question.

The 10-years of earnings growth is related to earnings growth rate for that period. That has to be positive. You can have some bad years during that time frame and still have a positive earnings growth rate in that 10-year period. This allows me to not penalize a company that had a bad year, since no business can always grow earnings perfectly.

At a glance, positive earnings growth rate and cash flow rate, market cap, dividends and debt to market cap is what makes to that "to be researched later" list. I get that in a glance with FASTGraphs. Further diligence is done later by researching the business (letter to shareholder, investors presentation, management, earnings call, metrics on fundamentals) which will then determine if it passes my quality criteria. Those fundamental metrics are analyzed via portfolio123 and there is a step-by-step example on the first post of how I did that when I came across BLK.

The only exception to the criteria above (positive earnings growth rate for 10 years) is when it's a growth company or a new company as a result of a merge / acquisition.


Rod
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georvu wrote:
Oct 23rd, 2017 10:59 am
97 US companies, sorted by sector:
Energy: CVX, XOM
Materials: APD, ECL, PPG, SHW
Industrials: CTAS, DNB, DOV, EMR, EXPD, GD, GE, GWW, ITW, MMM, NDSN, NOC, PH, PNR, RTN, SWK, UTX
Consumer Discretionary: COH, DIS, DRI, GPC, JCI, KSS, LOW, MCD, ROST, SBUX, TGT, TJX, TUP, TWX, VFC
Consumer Staples: ADM, BF.B, CL, CLX, COST, GIS, HRL, HSY, KMB, KO, KR, LANC, MKC, MO, PEP, PG, PM, SYY, TAP, WBA, WMT
Health Care: ABBV, ABT, BAX, BCR, BDX, CAH, JNJ, MDT, UNH
Financials: AFL, AMP, BEN, BLK, CB, SPGI, TROW, WFC
REITs: HCP, O
Info Tech: AAPL, ACN, ADP, BR, CSCO, IBM, INTC, MA, MSFT, ORCL, PAYX, QCOM, TXN, V
Telecom: T, VZ
Utilities: AWR, SO, VVC

Rod: Appreciate if could post updated thoughts on bolded above. Thanks.
Hi georvu,

Sorry for the delay - I will wait after earnings to have a more accurate update. Lots of expectations given the strong guidance given last quarter, but results for the few that just started to report hasn't been that impressed. Already disappointed at GE that they missed badly cash flow results and dividends are estimated to be reduced or cut in November (although their CEO seems to be doing the right things and I still believe they're positioned for growth).

Here is when these companies are reporting:

XOM: October 27;
DIS: November 9;
AAPL: November 2;
T and VZ already reported.


Rod
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hat1811 wrote:
Oct 23rd, 2017 11:08 am
Hi Rod,

Enbridge Income Fund Holdings Inc (TSE:ENF) interesting. what's scoop on this one..

Thanks,
No changes for me. It continues to look bullish, with operating cash flow and dividends estimated to grow, and since price has been dropping, it presents a nice opportunity:

Image

In my opinion, the negative sentiment is due to the downgrade rating by Moody's. You can read Moody's reasoning for the downgrade, however the other agency that rates ENF (DBMRS) maintains their stable rating and you can read DBRS's reasoning here.

In my opinion ENF actually carries less risk than ENB, because ENF has minimal commodity price and throughput exposure and ENF has long-term commercial agreements with strong counterparties (when ENB transfer their mature assets to ENF). ENF cash flow is very stable and predictable - only 1% of its cash flow is subject to market price risks including commodity, interest and foreign exchange - 99% of it comes from long-term commercial agreements. That gives them the confidence to expects a 10% dividend per share CAGR through 2019, supported by $13 billion of assets currently under development to be delivered through 2018, and increasing returns from many assets already in service.

ENF reports on November 2, and their Investor Relation days will be on December 12 and 13, so I'll monitor those dates to evaluate if there are any guidance changes - but so far, it points to a decent valuation.


Rod
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