Investing

Investing Idea - Dividend Growth

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Dec 14, 2010
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vinajackfruit wrote: What do you guys think about Saputo? Now P/E is lowered to 18, near 52 week low. Likely a safe bet? Thanks
Fantastic company and finally it's fairly valued now. I'll add more shares.

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Rod
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vinajackfruit wrote: Hi rodbarc , what do you think about ALA and ENB? Tempting, price is 52w low. Thanks
I like ENB and I've posted a review recently. However, I don't like ALA (it's not on my watchlist), because I find their payout ratio to cash flow too high in my opinion, besides having a worse tracking record on dividend CAGR when compared to ENB). Presently, there are a few uncertainties with ALA - they recently gave up selling its California gas-fired power assets to re-evaluate potentially selling better assets (which would provide more cash to ALA now, but it would hurt them strategically in the future). Also, they reduced guidance on their last call, targeting EBITDA growth to 25% to 30% range and FFO growth to 15% to 20% range (dividend guidance was kept intact, with 8% to 10% growth until 2021 and capital program increased by $100 MM to a $500MM to $600 MM range).


Rod
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Chance7652 wrote: Hi Rod,

In your blog post I saw that you bought more QSR. I have it on my watch list due to its high growth and 3% dividend. It also has a B+ credit rating and the 72% debt/cap. Do you see this a risk for their future expansion?
Not at all. QSR is highly leveraged (hence it's high debt/cap ratio), but what gives me the security to not worry about is how high their free cash flow per share are:

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Their cash flow growth and cost control has been so great that dividends were raised by 130% last month. It's that strong. So QSR should continue to generate high levels of FCF and management committed to continue to de-lever and be opportunistic on M&A to improve the credit rating further. Furthermore, QSR has shown to have lower capital intensity than its franchised peers, so they're undervalued considered their FCF yield of 5.5% vs the peer-group median of 4.0%.

QSR business model is fantastic: they collect rent and royalties from Burger King, Tim Hortons and Popeyes franchisees, essentially taking a cut of sales, without having to manage operations. Prior to acquiring Tim Hortons, QSR (along with companies like Dunkin Brands and Dominos) had transformed the financial model of the QSR industry by selling off almost all corporate stores and related assets, becoming an almost pure-play royalty model. This allows them to have a safe and growing stream of cash flow. Growth is a matter of driving same-store sales with good deals and occasionally new products, and adding franchises at a rapid pace. QSR is expanding substantially in Asia, Europe and South America with all banners projected to grow unit count in mid-single digits this year and next year, as the street has high expectations for a similar integration performance with Popeyes.

Chance7652 wrote: How much do you look at companies debt and credit ratings when evaluating them?
Debt and credit ratings are just one of many criteria regarding quality. A company must be investment grade, but it doesn't have to be grade A. I'm ok to have a a company with lots of debt and highly leveraged, as long as cash flow is sustainable and dependable (and the company has a long term plan to de-lever). The major threat for this scenario is when revenues keep dropping constantly, which can eventually put that cash flow at risk - this is what I've been observing with Corus, for example, and I had to wait several quarters of poor revenue results before selling, because they do have enough cash flow to sustain their high dividends even though they have lots of debt. Other companies, like ENB, are barely above investment grade due to their capital intensive nature and growth prospect. Companies need debt to grow (as debt is cheap), so as long as they are being properly managed, I'm ok with it. My portfolio is also diversified with equities that are very safe from a credit rating / debt perspective, and together I believe they provide a good balance on dividend and capital appreciation growth.



Rod
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Feb 4, 2015
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Canada, Eh!!
rodbarc wrote: Hi Georvu,

Correct, in most cases, dividends paid in U.S. dollars by Canadian companies (regardless if listed in TSX or NYSE) are eligible for the dividend tax credit, since the dividend tax credit is applicable to Canadian companies (regardless where they're listed).

Keep in mind that not every Canadian company listed in US Exchange pays native dividends in US$. There are presently 48 Canadian companies that are listed in US exchanges, but only 18 of them pays dividends native in US$ (ie, the company announces the dividend amount in US$ and C$, for the stocks listed in US and Canadian exchanges). The other 30 companies have their dividends announced in Canadian dollars only, so if you hold them in a US Exchange, that C$ dividend is converted to US$ (via the brokers rate, which might not be the best). The 18 companies that declares US dividends are:

ABX
AEM
AGU
AQN
ECA
BAM.A
BEP.UN
BIP.UN
BPY.UN
FNV
G
GIL
MX
MG
PAAS
POT
TRI
WPM

The 30 remaining companies that trade in US Exchange but declares dividends in Canadian dollars only (the dividend settles in US$ after the broker converts it to US$) are:

BCE
BMO
BNS
CAE
CCO
CM
CNR
CNQ
CP
CPG
CVE
ENB
ERF
FTS
IMO
MFC
PPL
RBA
RCI.B
RY
SJR.B
SLF
STN
SU
TA
TD
TECK.B
TRP
T
VET


These are the Canadian tickers, to make it easier to identify with the Canadian company that you're looking for, you'll need to look up its respective US ticker.

If I was in your position, I'd add Magna (MGA), although ENB is also attractive. TRI is undervalued, but there's lower growth prospect when compared to MG and ENB.


Rod
Thanks Rod.

Will add Magna to portfolio. Missed that one so glad came to the right thread!!
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rodbarc wrote: Fantastic company and finally it's fairly valued now. I'll add more shares.

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Rod
What makes you say it's a fantastic company?
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Rod, what's your view in buying more shares in CJR.B? Is the stock oversold and a good buy for the future considering current company track? I'd be fine with a 50% dividend cut. even that, at current price would still give a 8% yield.

Or should I just hold whatever I got and go with other like ENB and keep averaging down as it drops?
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Messerschmitt wrote: Rod, what's your view in buying more shares in CJR.B? Is the stock oversold and a good buy for the future considering current company track? I'd be fine with a 50% dividend cut. even that, at current price would still give a 8% yield.

Or should I just hold whatever I got and go with other like ENB and keep averaging down as it drops?
Rod recently posted about CJR.B

https://boostyourincome.ca/annual-revie ... olio-2018/
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Jan 22, 2018
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rodbarc wrote: Fantastic company and finally it's fairly valued now. I'll add more shares.

Image


Rod
Hi Rod

I agree Saputo is a great company... but being a long term investor I am afraid that the new NAFTA agreement will include Canada opening up their market for dairy. Wont this reduce Saputo market cap significantly???
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Rippa123 wrote: Hi Rod

I agree Saputo is a great company... but being a long term investor I am afraid that the new NAFTA agreement will include Canada opening up their market for dairy. Wont this reduce Saputo market cap significantly???
Saputo is a global company. In top three in US and Argentina, and in top four in Australia. I believe they were trying to get into Europe (I think Denmark) also.
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@Rod, are you inputting these manually when you purchase or is it done algorithmic at P123? Considering paying for P123 to input the same model and applying it.
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@Rod HOT.UN also pays it's dividends in USD, one more for your list.
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Messerschmitt wrote: What makes you say it's a fantastic company?
Their ability to grow earnings and dividends at double-digits for 20 years, regardless of market conditions and recessions:

Image

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Saputo is one of the top ten dairy processors in the world. It is the largest cheese manufacturer and the leading fluid milk and cream processor in Canada, one of the top three dairy processors in Argentina, and among the top four in Australia. In the US, Saputo ranks among the top three cheese producers and is one of the largest producers of extended shelf-life and cultured dairy products. Their revenue is over $11 Billion, they had 27 acquisitions in the last 20 years (most recent one was this year, acquiring Betin Inc, doing business as Montchevre, as well as extended shelf-life dairy product activities of Southeast Milk, in US). Their products are sold in over 40 countries, and their presence spams across 3 market segments.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:
Investing strategy based on dividend growth

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Syntax wrote: @Rod, are you inputting these manually when you purchase or is it done algorithmic at P123? Considering paying for P123 to input the same model and applying it.
The initial screening for my watchlist is done via algorithm rules in P123, which I'll post details soon. Then I use P123, Fast Graphs and each company's website for further research. Once my watchlist is set, I typically rely on FAST Graphs for valuation calculation, since the "what" to buy is already defined, Fast helps with the "when" to buy.

P123 is expensive to use just for that; but it has powerful capabilities on fundamentals data and modeling, and it certainly speeds up the boring calculations in Excel, besides aggregating a lot of data that is typically only available to institutional investors.


Rod
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Need advise on Just Energy (JE TSX). I bought it a few weeks ago in hope of collecting it's 8% dividend. But since then it has dropped 8% in these few weeks.

Do you suggest I keep it and wait it out? Or cut my losses? The whole energy sector has been on a downward spin for like 3 years.
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I know RCI.B is on your list, what do you think about it at these levels?
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CCHIPSS wrote: Need advise on Just Energy (JE TSX). I bought it a few weeks ago in hope of collecting it's 8% dividend. But since then it has dropped 8% in these few weeks.

Do you suggest I keep it and wait it out? Or cut my losses? The whole energy sector has been on a downward spin for like 3 years.
I don't like JE, but the main reasons JE has been dropping are due to a lower FY18 guidance, a weaker first half FY18 results and a lower FY18 guidance again during their Q2 results (JE fiscal year ends in March). JE started some initiatives which apparently reflected better than expected results last quarter and should improve results moving forward. Their dividends are not at risk of being cut given the comfortable cushion from operating cash flow, trading at a reasonable payout ratio of 72% to OCF, and estimated to improve slightly next year. Also, JE did well to sell some problematic line of businesses (their home services division and Hudson Solar), so now they have a lower capex model, which helps to be more predictable and narrowed focus as an energy player. Their balance sheet has also improved with the recent divestitures, keeping assets that has a much lower incremental cost. However, they still don't meet my quality criteria, so I wouldn't buy it. That doesn't mean that you have to sell it

You need to evaluate why you wanted to own JE in first place, and decide if it still meets your goals. You should sell it if it no longer meets your goals. You should hold it if it still meets your goals or if you're comfortable waiting another year to evaluate if the recent changes meet your goal again. BTW, collecting dividends shouldn't be the only goal, since the business must have solid quality metrics to continue to sustain, and preferably grow, that dividend. JE continues to pay over 8% dividend, but that still doesn't help with your concerns.

As I posted on another thread, investing in dividend growth stocks is not about how much their stock price might appreciate. Instead, it's about their safety and how much dividend income and dividend income growth they can provide long into the future. However, this is not to suggest that they do not possess the capacity for capital appreciation, because they all do. This is especially true if they are purchased at sound or attractive valuations. When you buy a stock below its intrinsic value, you are likely to earn returns that are even greater than the operating performance of the company in the longer run. But best of all, buying at low valuation reduces your long-term risk at the same time. However, in order to achieve those greater returns at lower levels of risk, it requires patience and an understanding of the company's financial strength. Therefore, you have to be patient and trust fundamentals more than price action in order to reap the benefits of investing at low valuations.

The problem with JE, in my opinion, is that it lacks financial strength. However, that's what makes a market, so you need to evaluate why you own JE and if they meet your goals to sustain such high dividend.


Rod
Build a comprehensive portfolio based on Investing and Trading strategies. Check out these threads and join the discussion:
Investing strategy based on dividend growth

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Rod: might be off topic here but can you give some analysis on growth stock such as FB/GOOG/AMZN ? Might be a good entry point with correction lately ? Thanks very much.
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rodbarc wrote: Their ability to grow earnings and dividends at double-digits for 20 years, regardless of market conditions and recessions:

Image

Image

Saputo is one of the top ten dairy processors in the world. It is the largest cheese manufacturer and the leading fluid milk and cream processor in Canada, one of the top three dairy processors in Argentina, and among the top four in Australia. In the US, Saputo ranks among the top three cheese producers and is one of the largest producers of extended shelf-life and cultured dairy products. Their revenue is over $11 Billion, they had 27 acquisitions in the last 20 years (most recent one was this year, acquiring Betin Inc, doing business as Montchevre, as well as extended shelf-life dairy product activities of Southeast Milk, in US). Their products are sold in over 40 countries, and their presence spams across 3 market segments.


Rod
Is that a free tool you are using to generate these?

Thanks

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