Investing

Investing Idea - Dividend Growth

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Mar 23, 2011
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rodbarc wrote: As posted on another thread, Cineworld is buying Cineplex for $34 a share.

Details of the acquisition:

https://www.cineworldplc.com/sites/cine ... 2-2019.pdf


Rod
Hi Rod,

Regarding the Cineplex deal, I have a bunch of shares at an average of $35.30 price. Would I be better off selling them today when the price jumps, or hold on? I don't like the sector long term and this may be a chance to get out but I am interested in your opinion. Thanks!
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sherman51 wrote: Hi Rod,

Regarding the Cineplex deal, I have a bunch of shares at an average of $35.30 price. Would I be better off selling them today when the price jumps, or hold on? I don't like the sector long term and this may be a chance to get out but I am interested in your opinion. Thanks!
I don't make decisions on price changes, only if the busines no longer meet my goals. With Cineplex, I read that they intend to continue paying its normal monthly dividends in the ordinary course through the acquisition payment which would be due on February 28, 2020 consistent with past practice. After such time, Cineplex does not intend to declare any further dividends.

So I will continue with my high dividend payout until February, and after that, sell it and deploy the cash somewhere else, since they don't intend to declare further dividends after February.

I have been holding Cineplex since it was an income trust, and bought a lot while it was undervalued so I am ok to keep the high income until I have to sell it - similar approach that I took with Westjet and Family Dollar acquisitions.


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rodbarc wrote: I don't make decisions on price changes, only if the busines no longer meet my goals. With Cineplex, I read that they intend to continue paying its normal monthly dividends in the ordinary course through the acquisition payment which would be due on February 28, 2020 consistent with past practice. After such time, Cineplex does not intend to declare any further dividends.

So I will continue with my high dividend payout until February, and after that, sell it and deploy the cash somewhere else, since they don't intend to declare further dividends after February.

I have been holding Cineplex since it was an income trust, and bought a lot while it was undervalued so I am ok to keep the high income until I have to sell it - similar approach that I took with Westjet and Family Dollar acquisitions.


Rod
Thanks Rod, quick follow up. Do you know if upon the deal closing in the 1st half of 2020, if shareholders simply get paid out @$34/share or if the shares would become Cineworld shares traded on the London exchange?
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sherman51 wrote: Thanks Rod, quick follow up. Do you know if upon the deal closing in the 1st half of 2020, if shareholders simply get paid out @$34/share or if the shares would become Cineworld shares traded on the London exchange?
That hasn't been disclosed yet. Conditions below:

http://irfiles.cineplex.com/Attachments ... 3752_0.pdf


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vivmk20 wrote: Thanks Rod,

I was checking for Children’s Place
PLCE is not on my list and I didn't have a chance to look at it yet. Will take a look later and come back to you.


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rodbarc wrote: That hasn't been disclosed yet. Conditions below:

http://irfiles.cineplex.com/Attachments ... 3752_0.pdf
Closing date is unknown. Per release: “Cineworld Group will acquire all of the issued and outstanding common shares (the ‘shares’) of Cineplex for $34 per share in cash”. We all get cash for our shares and not Cineworld shares. Obviously this could change but right now we’re getting cash, right?
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Forgive the stupid questions, but what does it mean for those of us who own it. Is there another thread (a newbie one?) where I should ask this instead?

1) Does that mean that I will now own some converted shares of Cineworld stock ?
2) Cineworld has a ticker of CSE.L. London stock exchange?
3) What does this mean for dividends?
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jalaram wrote: Forgive the stupid questions, but what does it mean for those of us who own it. Is there another thread (a newbie one?) where I should ask this instead?

1) Does that mean that I will now own some converted shares of Cineworld stock ?
2) Cineworld has a ticker of CSE.L. London stock exchange?
3) What does this mean for dividends?
No such thing as a stupid question if you don't know the answer.

1) Not necessarily, these details haven't been disclosed yet. All we know is that a British company is acquiring Cineplex and Cineworld is listed on LSE, but that doesn't mean that Cineplex will continue to be traded on the exchange.

2) Correct, but it simply means that the acquirer is listed on LSE. It says nothing on how the company being acquired will be listed - if it will continue to be listed.

3) As per announcement today, dividends will continue until February next year and after that Cineplex intention is to not have further dividends.

The deal is subject to approvals from shareholders and regulators. The companies expect the transaction to close in the first half of 2020. However, Cineplex has seven weeks to solicit and negotiate with other potential buyers who may be willing to pay more for the company. Cineworld would be receive a termination fee under certain circumstances including if Cineplex finds another buyer with a superior offer.


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rodbarc wrote: I don't make decisions on price changes, only if the busines no longer meet my goals. With Cineplex, I read that they intend to continue paying its normal monthly dividends in the ordinary course through the acquisition payment which would be due on February 28, 2020 consistent with past practice. After such time, Cineplex does not intend to declare any further dividends.

So I will continue with my high dividend payout until February, and after that, sell it and deploy the cash somewhere else, since they don't intend to declare further dividends after February.

I have been holding Cineplex since it was an income trust, and bought a lot while it was undervalued so I am ok to keep the high income until I have to sell it - similar approach that I took with Westjet and Family Dollar acquisitions.


Rod
For the most part, I agree with you about being not very price-sensitive about stocks but being more company performance sensitive. However, I do feel that takeover offers with a significant premium is an exception to the price-insensitivity for one reason:
While the increase in price doesn't affect the payout for as long as the company continues to payout, the premium being offered is really a one-time bonus that may or may not come around again. And as the offer isn't final until the offer has been accepted by all parties, there is a certain level of risk that the offer may not actually go through.... As such, the premium may allow the investor an opportunity to swap out of one company and swap into another while using the premium a way to improve the overall portfolio/return while the transaction is in limbo. For example - the premium can be used to purchase stock in a similar company valued at a similar level to CGX prior to the takeover offer.
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craftsman wrote: For the most part, I agree with you about being not very price-sensitive about stocks but being more company performance sensitive. However, I do feel that takeover offers with a significant premium is an exception to the price-insensitivity for one reason:
Agreed, it's a risk to wait. If one is looking for an opportunity to get out, then one should sell now. On my case, I am in for the dividend income and have been happy with how management have been addressing the diversification of the business lately, so I am not in a rush to get out. My average cost far exceeds the amount offered, which can now be replaced with a 4.4% yield stock, so I might sell some if there's an opportunity to deploy some / all proceeds somewhere else. In my opinion, this will either go for the Cineworld price or higher if someone else counter offer. But it's subject to approvals, it's not a done deal.


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jalaram wrote: Does that mean that I will now own some converted shares of Cineworld stock ?
rodbarc wrote: Not necessarily, these details haven't been disclosed yet. All we know is that a British company is acquiring Cineplex and Cineworld is listed on LSE, but that doesn't mean that Cineplex will continue to be traded on the exchange.
It is pretty clear from the Plan of Arrangement filed on SEDAR that this is an all cash deal. Shareholders of CGX have no option to acquire Cineworld shares in exchange for handing over their CGX shares. The agreement says (3.1(b)(i)) "each Company Share held by a Company Shareholder ... shall be transferred (free and clear of all Liens) to the Purchaser Subco in exchange for a cash payment to the Company Shareholder equal to the Consideration".

It's also clear that Purchaser Subco is a "direct or indirect wholly-owned Subsidiary of the Parent" and Parent is very clearly defined as Cineworld Group PLC. Purchaser Subco won't be listed on any Canadian exchange and we won't have any ability to own the CGX assets directly. If we want to get at it we'll have to invest separately in CSE.

All this said - this is a Plan of Arrangement that can change prior to closing (if closing happens at all!). IMO the market pricing CGX shares at almost exactly the "Consideration" is a very strong indicator that this transaction will be completed (or a transaction will be completed at that $34/share price).
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So we all know about Enbridge's dividend policy going forward. They've been pretty clear about it. But I've been thinking about Suncor recently. I read somewhere that management plans to hike by 10 percent a year going forward. I tried confirming it by looking at some of their statements last night, but I didn't have time to do it properly. Didn't see anything. Does anybody know what their overall policy is going forward?

At 4 percent starting yield it's just at the level I consider investing in. If they're planning to increase by 10 percent a year then sign me up.
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MashGhasem wrote: So we all know about Enbridge's dividend policy going forward. They've been pretty clear about it. But I've been thinking about Suncor recently. I read somewhere that management plans to hike by 10 percent a year going forward. I tried confirming it by looking at some of their statements last night, but I didn't have time to do it properly. Didn't see anything. Does anybody know what their overall policy is going forward?

At 4 percent starting yield it's just at the level I consider investing in. If they're planning to increase by 10 percent a year then sign me up.
I think you should sign up. Suncor can't commit to a specific level of dividend increases because their business is not as predictable as enbridge's, but they are interested in returning a shit ton of cash to shareholders. Dividend+buyback yield was 7% for 2018 according to October investor presentation. Dividend plan is to "Continually grow with sustainable FFO increases" which I take to mean that the dividend hike will depend mainly on oil price.
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SellPuts wrote: I think you should sign up. Suncor can't commit to a specific level of dividend increases because their business is not as predictable as enbridge's, but they are interested in returning a shit ton of cash to shareholders. Dividend+buyback yield was 7% for 2018 according to October investor presentation. Dividend plan is to "Continually grow with sustainable FFO increases" which I take to mean that the dividend hike will depend mainly on oil price.
I've thought long and hard about buying Suncor as a div grow stock. They do have a pretty good history of growing dividends. However at the end of the day the financial performance is tied to the ups and downs of the oil market, which has kept me out of it. Also, the secular trend with energy is towards green / renewables. I realize Suncor has operations in this space, but what's the long term trend of hydrocarbon production / utilization going to be? Also, consider the rise of fracking and it's cheapness compared to oil sands extraction - what does this mean for the long term of Suncor? With all of this being said, I think Suncor's management is top notch and they are very likely aware of these trends and probably have a good plan in how to manage these risks, but as an investor it's kept me out of SU stock.

Something to further ponder - SU does have some parallels to NYSE: MO as well - MO is operating in an industry facing a long term secular decline but it's done a good job returning cash to shareholders. It's also generated an annualized return of ~ 20% from 1968 - present.
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Rod's best recommendation so far has been RNW lol. Anybody know why it went up so much today? I bought in the mid-11's. This thing went down to 10 I think. At one point it was paying 9%. Then it reversed and went straight up without looking back. And today it went up like 4% and I can't figure out why. Not complaining though.
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@rodbarc You had added to SPG in Oct... just wondering what your thoughts are on it presently. Deciding on this vs BCE [in USD]... not same sector stocks so been debating which. Thanks.
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MashGhasem wrote: Rod's best recommendation so far has been RNW lol. Anybody know why it went up so much today? I bought in the mid-11's. This thing went down to 10 I think. At one point it was paying 9%. Then it reversed and went straight up without looking back. And today it went up like 4% and I can't figure out why. Not complaining though.
IMO RNW and BEP are performing well for the same reason: anemic long term bond yields. These companies derive the vast majority of their revenue from fixed price long term contracts. They are essentially a high coupon bond play. Nothing has happened in the last wee while to suggest they’re growing their generation portfolio materially so. I’m actually wondering if this is a good exit point for BEP but haven’t decided to pull the trigger.
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ahlaker wrote: IMO RNW and BEP are performing well for the same reason: anemic long term bond yields. These companies derive the vast majority of their revenue from fixed price long term contracts. They are essentially a high coupon bond play. Nothing has happened in the last wee while to suggest they’re growing their generation portfolio materially so. I’m actually wondering if this is a good exit point for BEP but haven’t decided to pull the trigger.
As you have stated, it's a play on bonds... or more to the point, it's a play on low bond yields so as long as bond yields stay low, there will be support for these valuations in terms of the stock price. However, as you have probably noticed, the US 10-year has been going up in yield over the past week to 10 days and if the trend holds, I suspect that these types of stocks will be under downward pressure until the situation with the 10-year yield stabilizes.
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georvu wrote: @rodbarc You had added to SPG in Oct... just wondering what your thoughts are on it presently. Deciding on this vs BCE [in USD]... not same sector stocks so been debating which. Thanks.
That was just 1 earnings quarter after my last purchase. No changes. SPG is undervalued, with a great yield that is estimated to grow further. They reported results a few weeks after my purchase. They increased their FFO guidance to $12.33-$12.38 per share from its prior range of $12.30-$12.40. Adjusting the prior year for a change in a accounting standard, Q3 2019 FFO increased 1.0% Y/Y. Q3 total revenue of $1.42B exceeds the consensus of $1.39B and increases from $1.40B in the year-ago quarter. Q3 comparable property net operating income growth was 1.6%. I like to use AFFO for valuation, which shows that it's at a level that the stock will now perform better than the actual business:

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REITs and MLPs have been dropping due to 10-year yield increase. It doesn't change the fundamentals for this business. After the bond redemptions, SPG liquidity stands at 7 billion, with a balance sheet’s in great shape. For example, according to Moody's, "Simon's ability to retain and attract tenants, even in the properties that do not generate very high levels of sales per square foot, is enhanced by its significant scale, strong tenant relationships, and the REIT's capacity and willingness to invest in its properties. Simon's prudent capital investment strategy includes a good mix of new developments, redevelopments and expansions across asset types and markets. The REIT's ratings could be downgraded if there is a significant deterioration in earnings or the REIT's competitive position. Net debt to EBITDA significantly above 7.0x and fixed charge coverage declining meaningfully to below 3.5x on a sustained basis could create negative rating pressure, as would a highly levered and large acquisition that could present capital structure and operating challenges. Given Simon's strong franchise, prudent and consistent capital strategy and sound liquidity position, rating revisions are unlikely for a modest or transient weakening of credit metrics. Improvements in other credit factors that could offset weakness in credit metrics could also influence the rating outcome."

SPG announced a dividend of $2.10 per share, a 5% increase year-over-year. SPG has grown the dividend more than 8% over the last few years. The annualized dividend yield is greater than 5% which is more than 350 basis points higher than the 10-year Treasury which is it at basically at a record spread were more than 1.5 times covered in terms of our dividend coverage by their FFO.


BCE is expensive... waiting for better valuation to add more.

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