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We hit one of dividend growth investors’ favorite business model types: growth through acquisitions. While it often rhymes with dividend growth, there are pros and cons to consider and this is why we are here! This episode should help you analyse your holding’s next acquisition.
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You’ll Learn
- Mike likes the growth by acquisition business model as it fuels companies with growth. These businesses also tend to get bigger faster and to show better margins.
- To discuss the advantages of such companies, we pulled out concrete examples: Alimentation Couche-Tard (ATD.TO), Broadcom (AVGO), Canadian Pacific (CP), and Realty Income (O). How has this approach brought success for each of them?
- It seems more complicated for an industrial company like CP. Railroads are hard to replicate and not so numerous. They are also asset heavy. Is it a riskier strategy for them?
- Constellation Software (CSU.TO) is the specialist in acquiring small companies. Mike describes this unique model and the expectations that come with it.
- Regulations can get in the way of an acquisition, which results in doubts. It was the case for Microsoft with ATVI, which brought speculations for months. We had another example with Rogers and Shaw. How should investors react?
- There are also times when things go south. The Healthcare sector seems to have a hard time with the growth by acquisition strategy. We can think of CVS, Abbvie and Pfizer. Why is it difficult for them?
- CAE is another example. Diversification into a business may result in some failures. Mike explains what happened.
- We couldn’t do this episode without mentioning Enbridge. Huge debt has impacted its business and let investors confused.
- Recently, the news spread out that Laurentian bank wanted to be bought. It turned out bad for some investors who might have “played” the market. Mike adds some words of caution.
- Are high interest rates adding pressure on companies that grow by acquisition? Is it a good time for investors to grab some shares?
- Mike summarized what investors should look at before buying or selling a company known for its growth-by-acquisition model?
Related Content
Here is part 2 of Mike’s thoughts on 35 Stocks. Stop hesitating on banks, groceries and restaurants, railroads, and more!
My Take on 35 Stocks Puzzling Investors – Part 2 [Podcast]
How to find the next low-yield, high-growth stock that will propel your portfolio to a new high level? Below is how I’ve picked the successful ATD.TO a while ago and how you can use it to find the next one!
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The post Companies that Grow through Acquisitions: Pros and Cons [Podcast] appeared first on The Dividend Guy Blog.
