Investing

Investing Idea - Dividend Growth

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  • Oct 16th, 2020 5:52 pm
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Feb 26, 2017
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Ferny111 wrote: Long time reader of this thread.

Curious what everyone's thoughts/feelings are on REITs at the moment. They've taken quite a tumble, often not rebounding to the same degree alongside the market. For example, REI.UN has been struggling to maintain a stock price above $16.50. The company is still making its .12c/share dividend declaration each month. I've been purchasing a lot here and there as my exposure to the sector was nonexistent prior March (aside from a single rental income property).

Cheers!
I'm going to answer this from the point of view of retail reits although there are many other types of reits (apartment, data center, cell tower).

I think retail reits are pretty under valued. There is a big discount to the Nav which should make the higher end reits a good investment as they own valuable real estate. Outdoor malls seem better than enclosed. I think it probably makes sense to pick the bigger/higher quality names.

There is risk though and I'm thinking covid will accelerate the trend towards people shopping online. Rei when I looked it in Fastgraphs had a payout of over 100%. I wouldn't be surprised to see more dividend cuts. Over time the reits should trade near their nav.

I own sru and crt but I'm probably going to keep my exposure to retail reits small.
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Ferny111 wrote: Long time reader of this thread.

Curious what everyone's thoughts/feelings are on REITs at the moment. They've taken quite a tumble, often not rebounding to the same degree alongside the market. For example, REI.UN has been struggling to maintain a stock price above $16.50. The company is still making its .12c/share dividend declaration each month. I've been purchasing a lot here and there as my exposure to the sector was nonexistent prior March (aside from a single rental income property).

Cheers!
Many are undervalued and might continue undervalued for a while. During March dip I added some SPG and O, but won’t add further until there’s better guidance/ clarity on how this will progress, since I hit my exposure limit to that sector. Datacenter REITs should continue to prosper, I added DLR and EQIX a few months ago (which are on my approved list, to be updated for next year), but they are expensive now. However, O is still reasonably priced. And SPG is still undervalued. Once recovery starts, maybe next year or the year after, I think they will be well positioned to prosper.

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In the Canadian space, CHP.UN is fairly valued, but estimated to remain flat, although dividends appear safe. I will wait to add more. Allied Property is fairly valued now, after being expensive for a while - and I expect them to grow further, due to their datacenter exposure. Allied is a great REIT in my opinion, due to their low leverage (27%) compared to peers (46%) and the only REIT with datacenter exposure (15.7% NOI according to latest quarterly report). Due to Covid, a lot of people have been forced to work from home - and as a result, companies had to add infrastructure capacity to enable all remote workers to login / operate without issues, which requires additional capacity and datacenter resources.

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Also I have CRT.UN on my approved list to be updated next year, which is presently fairly valued:

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Smartcenters REIT (not on my list) is also undervalued, and no growth estimated for now. Worth some additional research as it has an attractive yield that appears sustainable, considering the payout to adjusted funds from operations. Their tenants are companies that should continue to prosper, like Costco, Walmart, Home Depot, Fortinos, Loblaws, RBC, Dollarama to name a few. It's the largest retail developer in Canada, so that comes with risks since other tentants include Cineplex, Flight Center, Toys R Us, Bed Bath Beyond, Good Life, among the retailers that is unknown how the recovery will take place.

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Rod
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Great post, Rod. Thanks. In my opinion, NYSE:COR is also worth considering in the REIT space.
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Ferny111 wrote: Long time reader of this thread.

Curious what everyone's thoughts/feelings are on REITs at the moment. They've taken quite a tumble, often not rebounding to the same degree alongside the market. For example, REI.UN has been struggling to maintain a stock price above $16.50. The company is still making its .12c/share dividend declaration each month. I've been purchasing a lot here and there as my exposure to the sector was nonexistent prior March (aside from a single rental income property).

Cheers!
BTW, this is how REI.UN looks from an adjusted funds from operations metric, which is the metric that I use to evaluate REITs. Look how the adjusted funds from operations are very close to the dividend amount paid, giving very little buffer for liquidity. During last recession their AFFO was lower than paid dividends, and they didn't cut dividends. But it involves more risks, which is one of the reasons that I don't own REI.UN.

Last quarter results were above estimates. Management disclosed that REI had approved ~$15MM (17%) of April rent for deferral, and another $15MM for May rent deferrals. As a result, 55% of total April gross rents were received, 17% were deferred, and 28% remain as yet uncollected. The REIT further notes that it holds ~$30MM of security deposits and $5MM in letters of credit from a number of tenants, which can help mitigate the impact of tenant defaults, should they occur. Their debt to gross book value increased last quarter to 43%. Debt maturities in 2020 amount to ~$729.9MM. During the last reported quarter, REI secured new mortgages of $209.6MM, and repaid $177.3MM of mortgage balances and scheduled amortization. In addition, REI issued a $350MM “green bond”, a senior unsecured debenture maturing in March 2027, effectively refinancing the $400MM of debentures maturing in June and August 2020. REI had $1,001MM of liquidity at Q1/20 (as measured by undrawn facilities + current cash). For context, this represents ~1.4x the 2020 debt maturities noted above, and ~11 months of stabilized revenue (we use 2019 rental revenue as our run rate). Interest coverage of 3.48x remains healthy, suggesting that there is little to no need to draw on available liquidity to cover interest payments at this time. REI will report earnings on July 29th.

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Rod
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rodbarc wrote: Many are undervalued and might continue undervalued for a while. During March dip I added some SPG and O, but won’t add further until there’s better guidance/ clarity on how this will progress
Thanks a lot for these, Rod. Appreciate your thoughts on the sector. The information about the data centers was very interesting. I recently started a small position in REI.UN and am planning to add more allocation to REITs. If you don't mind sharing, what is your exposure limit to the sector? I only hold 2 REITs, with a current weighting of 6.2% of my TSFA, and a lower percentage of my overall portfolio so I feel pretty comfortable adding to it.
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llpresident wrote: @rodbarc Any upcoming blog posts planned?
In a few weeks once earnings are concluded and gives an idea of what to expect.


Rod
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Jan 30, 2017
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Hi Rod

Hoping to get your opinion on ACO.X?

I have cdn cash and think this is pretty safe. I also see your invested in this stock

One thing that concerns me is that their estimates for eps for next few years is that it will contract

Thanks Rod and looking forward to ur next blog post
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treva84 wrote: Can anyone copy paste this again for me please? Yes, I still can't technically figure out how to get past the pay wall. TIA!! :)

https://www.theglobeandmail.com/investi ... rsecurity/
Six dividend stocks that tap into the growing demand for cybersecurity
SCOTT CLAYTON
SPECIAL TO THE GLOBE AND MAIL
PUBLISHED 16 HOURS AGO
UPDATED JULY 23, 2020
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WHAT ARE WE LOOKING FOR?
Cybersecurity stocks offering growth – and sustainable dividends.

THE SCREEN
A cyberattack compromising 130 Twitter accounts – included those of former U.S. president Barack Obama, Tesla chief executive Elon Musk and reality TV star Kim Kardashian – played havoc with the platform last week. Still, the hack also served to highlight the very favourable outlook for top cybersecurity stocks.

The rise in cyberattacks generally – and the growing awareness among businesses, governments and consumers alike – is raising demand for cybersecurity software. We’re looking for dependable dividend payers among the tech firms offering that protection. While almost all cybersecurity leaders channel their cash flow into high research spending, a select few also reward investors with sustainable dividends.

We applied our TSI Dividend Sustainability Rating System to an extensive list of leading cybersecurity firms paying dividends. The system awards points to a stock based on key factors:

One point for five years of continuous dividend payments – two points for more than five;
Two points if it has raised the payment in the past five years;
One point for management’s commitment to dividends;
One point for operating in non-cyclical industries;
One point for limited exposure to foreign currency rates and freedom from political interference;
Two points for a strong balance sheet, including manageable debt and adequate cash;
Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
One point if the company is a leader in its industry.
Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

MORE ABOUT TSI NETWORK
TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

WHAT WE FOUND
Our TSI Dividend Sustainability Rating System generated six stocks. NortonLifeLock Inc. (formerly Symantec) is a global leader in combatting cyberthreats aimed at individuals. Networking leaders Cisco Systems Inc. and Juniper Networks Inc. include strong cybersecurity in their products. A wide range of U.S. federal government agencies, including the FBI, Department of Homeland Security and the armed forces, rely on ManTech International Corp.’s software and technical support. Leidos Holdings Inc. offers similar cybersecurity to government, health care organizations and private enterprises. Vancouver’s Absolute Software Corp. specializes in providing data security for firms that have mobile devices connecting to their networks.

We advise investors to do additional research on any investments we identify here.

Select cybersecurity stocks
RANKING* COMPANY TICKER DIV. SUSTAIN. RATING POINTS DIV. YLD. (%) MKT. CAP. ($ MIL.)**
1 Cisco Systems Inc. CSCO-Q Above Average 9 3.1 198,532.0
2 Juniper Networks JNPR-N Average 5 3.3 7,999.2
3 NortonLifeLock Inc. NLOK-Q Average 5 2.4 11,745.4
4 ManTech Int'l Corp. MANT-Q Average 5 1.9 2,663.3
5 Leidos Holdings Inc. LDOS-N Average 5 1.5 12,658.0
6 Absolute Software ABT-T Average 4 2.1 658.7
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Hi rodbarc,
Would you please give me your outlook on EIF (TSX)? Currently they're paying a monster dividend despite dropping significantly during covid. Wondering if I should bail out before the dividend ultimately gets slashed or if I should stay the course and hope things turn
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areyoukiddingme2k13 wrote: Hi rodbarc,
Would you please give me your outlook on EIF (TSX)? Currently they're paying a monster dividend despite dropping significantly during covid. Wondering if I should bail out before the dividend ultimately gets slashed or if I should stay the course and hope things turn
It all depends on your strategy. Are you an investor or a trader with EIF? I’m an investor, so I trust management and that they will have my best interest as a shareholder. I will only make a decision to no longer partner with them (sell) if the business, over a long period, no longer meet my goals (which means, I don’t penalize the business if they have a poor performance one year or two, but they won’t meet my goals if they don’t keep growing operating results overtime). We are in a pandemic and recession, so I will wait for the sector / industry to evaluate if they meet my goals, before making an emotional decision. This goes to every business that I am invested on.

Looking specifically at EIF, I expect revenue to drop 20% to 40%. But that doesn’t necessarily mean dividends being affected. Remember, EIF had above 100% payout ratio related to cash flow before, but their position has always been related to their outlook, their long term view if they can sustain it. So they were ok to go over 100% in late 2013 and early 2014 because they knew it would be temporary and it quickly normalized. They will report earnings on August 13th, before market opens. We’ll know details then.

Management remains positive about keeping dividends intact in their latest quarterly update in May. They have several measures in place to keep cash flow neutral to sustain it. Only if they had a prolonged outlook of cash flow reduction is when they would reduce dividends, but we need time to gauge this. The key metrics to watch for sustainability are EBITDA as maintenance CaPex and free cash flow minus maintenance CaPex. They have plenty of liquidity, cash available and more importantly, they have not taken government help on bailout money like some airlines did. Which also puts them in a position to not be curbed or told what to do (or not do) regarding dividends, because they are managing it on their own.

As an investor, sustainability of the business comes first, viability of dividends come next, and growths of the dividends come after. I think they have the right mindset and are doing the right things to manage that business, so I am not concerned with the upcoming earnings.


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

Trading strategy based on Graham principles.
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Dec 26, 2019
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Hi Rod,
Could I get your thoughts on CPX? I’m wondering if it meets your criteria for your DGI portfolio. Thanks

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