2 Years After Quitting My Job – The Dream, The Frustrations, The Achievements

I’m taking a break from the dividend world today to tell you a little bit more about my story. I’ve always been as much transparent as I could with you, and this won’t change today. On July 1st, 2017, I officially quit my job as a private banker and started my journey as an entrepreneur.

A leap of faith;

A dumb decision;

Freedom.

Call it what you want. On that day, I stopped receiving a paycheck, I kissed my defined pension plan goodbye and I turned my back to job security for life. But after crossing the Honduran border twice with my family; fear has been deleted from my vocabulary. I was up for something more exciting.

A look back at the first months

I started my journey as I start pretty much everything in life: all-in, full speed. The first months remind me of how I tackled my first trail run. I ran like there is no tomorrow until I realized that I needed to breath as I wouldn’t make it to the finish line.  The difference is that I took about a year before I realized I needed to slow down.

The first months were quite hectic. One day, I was working 10 hours and achieving tons of things. The next day, I was better off playing Hearthstone as my brain was completely dead. Finding a balance in hours worked and a consistency was a major challenge. With no boss and no appointments, wondering on the internet all day could be easily done!

I was rapidly going back to my tasks as I left my job without any safety nets. I had just come back from a 12 month trip across North & Central America. I had virtually no money left. I had to live with the possibility of not having enough money to pay my bills at the end of the month. Fortunately for me, I had someone looking out for me and he was ready to put money in whenever I needed it. I guess this is why we call that “love money” when you start a business. In an ideal world, I would have waited to have money on the side before quitting my job. But that would have been just another excuse piling up on top of another ten thousand reasons for not quitting my job sooner. I didn’t let that happen.

How I make money

So, could I generate enough money to sustain a family of five? Can this blog generate that much money? Unfortunately, it doesn’t. When I started working full-time, I had three major sources of revenue. I sold advertising on other websites (not this blog), I wrote a lot for Seeking Alpha and I built my membership website; Dividend Stocks Rock.

The first two sources require that I trade time for money, especially writing for another site. Each time I wanted to generate money, I needed to trade a couple of hours of my time in exchange of a paycheck for my article. While the money is good and it’s a good way to get immediate returns, this is not scalable. In fact, this looks a lot like having a job.

I’ve spent the past two years on building a better platform for dividend investors. In two years, we have grown our members community by more than 1,000. DSR has now become the most complete investing platform for dividend growth investors.

The Dream

So, Mike, do you really live off your investments?

When I tell people, I retired from the corporate world at 35, they all think I’m rich and living off my passive investments. There are so many discussions and definition of the FIRE movement (Financial Independence Retire Early) that one can easily be lost. I use the words “retired from the corporate world” as I now design my own lifestyle. Here’s what I mean by “I’m retired”:

I’m doing what I really like each day. This doesn’t mean I don’t work; I do. But if being retired means not working, I’m not going to be retired unless I pass away. If I had $10M in my bank account, I would still live in the same house as my children cherish their neighborhood and school. They have built a life here and I respect that. Once my children grow older, I’ll sell my house and travel the world while visiting them every 2-3 months. That’s what most people would call a great retirement, right?

I work 365 days a year, but I’m on vacation just as much. I don’t make any difference between Friday and Monday. I can work on Sunday morning, but be completely free for a Tuesday evening I’m never stressed to pick-up kids somewhere or driving them to their next activities. In 2018, I took at total of 6 weeks of what people call “vacation” and I’m planning to spend 1 month in Vietnam in early 2020. I will likely travel a month per year going forward. It’s not like taking a vacation because I’ll still work. But transforming my lifestyle into “I’m always working and always on vacation” is the best feeling.

I can work anywhere in the world. The only reason why I’m not already travelling across the world all the time is because I respect my children’s life here. However, I could easily afford to jump from country to another all year around. We are starting a “test” with Vietnam, but I really see myself going away 1 month per year (yes, during school time) each year starting in 2020.

I’m paid to manage my portfolio. I’ve noticed a major difference since I started working full-time on DSR: my investment performances have got even better. I was already doing well (I beat the market between 2012 and 2017), but I was even able to post positive returns in 2018, where both US and Canadian market were down by mid-single digits. Did I become a better investor? Not at all. The only difference is that I now spend 8-10 hours a day working on tools I developed at DSR and use them on my own portfolio. The more I work on DSR, the more I improve it, the better my portfolio performances are.

I guess the secret is that I found a passion (the stock market) and made a business out of it. This way, I never have the impression that I work. This is the definition of being retired for me: living a life that makes me happy without having to be obliged to someone or something else.

The Frustrations

Now that I’ve bragged for a while about how great the business is and how I enjoy my new lifestyle, I must tell you, being a business owner is no different than any other adventure in life: it’s amazing, but it comes with a great load of frustration too.

When you sit at a table with a pen and paper thinking about how great your business plan is going to be; you are filled with dreams and ambitions. You are ready to work relentlessly, and you expect great rewards. This all looks good on paper… I even had the impression I was reasonable, read cautious, in my estimates. Ah! What I fool I was.

The first problem I encountered was that no matter how hard you work; rewards don’t come right away. I’ve found myself working hard (this was no vacation or retirement!) and getting little results at first. I expected exponential growth, but it was more linear. For a while, I really had the feeling I was (again) trading hours of work for money. Then, it started to grow a lot faster, but it took over a year before I could reap the fruits of my labor.

I also started to “live the life” a little too fast. During my first year as an entrepreneur, I’ve had about 6-7 weeks off, I travelled to Guatemala, rented 2 vacations properties and toured all Atlantic provinces (besides Newfoundland). Let’s just say I was burning my money as soon as I made it. The company was left with little to survive. I should have remembered: cash is king. Now, I make sure to have lots of liquidity available in my company’s bank account!

The second challenge I encountered was finding consistency in my work. One day, I was a machine ready to work like 5 financial analysts. The next day, I found myself surfing between Twitter, Seeking Alpha, financial blogs and… playing Hearthstone. It took a good 6 months before I was finally able to have a schedule where I could work with consistency each day. I had to become better at planning my days, my weeks and I’m now working on planning my quarter (still a work in progress).

The third issue was scheduling ahead. For the first 12 months, I was basically working my way through the day and hope that I had done enough at the end of the week. Then, plenty of surprises would come my way at unexpected moments. For example, I had completely forgotten that we had annual renewals for both our hosting services and financial data access (through YCharts) during the same month. Let’s just say I didn’t enjoy spring break in March as I used to.

I’ve learned a lot during the first twelve months, and I can tell the second year was a lot better. During the last year, I learned how to manage those challenges and I’m now getting close to the point of hiring another employee as the business keeps growing. Being an entrepreneur is like a never-ending race where you must constantly learn new things and adapt. The finish line is rarely what matters, the journey is the real thing.

The Achievements

What I like the most about being an entrepreneur is the ability to change the course of things. I gained full control of both my life and my financial situation. Each day, I’m amazed to see this business growing into something a lot bigger than “just me”.

For 8 years now, I have a full-time employee. Vero, my core business manager, was “there” before I worked full-time on DSR. She learned how to work alone and manage the ship throughout the storms. Today, the team is growing as we have two part-times and I’m looking to add someone new to the team in the next 12 months. Watching DSR become a team effort is amazing. Now, I go on vacation and the job is still getting done. That’s a great feeling.

We also reached out 1,000th members after 18 months of hard labors. Around December 2018, we crossed the mark of 1,000 members and we keep growing. We are now about to help over 1,000 investors to avoid mistakes and make “good investments”. When members tell me, they were waiting for their Friday morning coffee to read my newsletter, it makes my day.

In February 2018, we launched an upgraded service called DSR PRO. This was a huge step forward for both the business and our members. We started with 35 beta testers at that time. The goal was to produce a report tracking each investor’s holdings and provide them with a summary of each earnings season. Today, we track over 1,000 stocks (on both Canadian and US markets) and generate reports for several hundred members. PRO subscribers not only receive a portfolio summary every quarter, they also get ratings on all holdings and a list of potential replacements for lower rated stocks. Even better, our buy ratings outperformed the market in the past 6 and 12 months while our sell ratings also save several thousands for our members.

Last year, DSR turned 5 years old. It was a great achievement as we have published our portfolio performance since day one. I always thought that if someone is willing to pay me for information, I better deliver something great. To this day (getting closer to 6 years!), most of our portfolios beat their benchmark (and the stock market as a whole). We went through 2018 with great success too (so don’t tell me bull markets make geniuses ?).

What’s going to happen next?

When I meet with old colleagues, most of them ask me if I regret. The only thing I regret was to not quit my job earlier and design the life I really want. This opportunity was sitting patiently in front of me for the past decade, but I only seized it 2 years ago. So no, I don’t regret my choice, I embrace it!

In the next 12 months, I want to move even faster. That’s why I’m working on hiring another employee, someone with a strong financial background that will help me bring DSR to a whole new level. I see there are so many ways we can improve investing knowledge that haven’t been done. I thought I could have hired that person already, but as everything else I planned; it looked better on paper than in real life!

In the next 12 months, I will also get to the “part II” of my lifestyle design. In an ideal world, I would travel with my family (my wife and three kids) for a month and then still have the resources to spend 7 to 10 days with my wife in another country each year. I think this is something that could happen in 2020, but this will include lots of work in the upcoming months! Fortunately, this is the kind of work that looks like a treat more than a task!

I always try to be as transparent as possible. If you have any questions about my lifestyle, my business, or how I manage anything else; just write a comment or write me an email.

The post 2 Years After Quitting My Job – The Dream, The Frustrations, The Achievements appeared first on The Dividend Guy Blog.

3 Of Our Top High Dividend Stock Selections Now

This is a guest contribution by Josh Arnold with Sure Dividend.

Investors in dividend stocks are interested not only in the safety of the payout and growth potential, but current yield as well. This is particularly important for investors that rely upon the income generated from their dividend stocks for living expenses. To that end, high-yield dividend stocks are favorites among income investors for obvious reasons.

However, not all high-yield dividend stocks are created equal. There are varying levels of dividend safety, growth potential, and current yield that paint a very different picture for some stocks compared to others.

In this article, we’ll take a look at three of our favorite high-yield stocks.

Source: Pixabay

#3:  WestRock Co. (WRK)

WestRock is a leading provider of paper and packaging solutions to a wide and deep base of customers globally. It was formed in 2015 when Rock-Tenn and Mead-Westvaco merged, creating a company with a nearly $10 market capitalization that has performed well in what is a boring, but profitable, industry.

Today, the company gets just over half of its revenue from the corrugated packaging segment and the balance from consumer packaging business. However, most of its profits come from the corrugated segment.

The company’s late April Q2 results showed strong revenue growth, adding 15% year-over-year. This growth was primarily attributable to the acquisition of KapStone that occurred late last year. In addition, price increases helped boost the top line. However, cost inflation crimped margins, causing adjusted earnings-per-share to fall 3.6%, declining from 83 cents to 80 cents year-over-year.

We see forward growth at 4% annually as over supply in the containerboard market is more than offset by pricing increases and the global push to rid the world of one-time use plastic containers.

Source: Investor presentation, page 6

WestRock is well-positioned to capitalize on this long-term trend as it has been pushing paper containers for a variety of containers, and we see this as a long-term tailwind for earnings growth.

The current payout of $1.82 annually is good for a 4.9% current yield. The dividend has increased at high single digit rates since 2016, but we expect that growth rate will slow slightly in the coming years. Still, WestRock’s current yield at nearly 5% is quite attractive, and even if the dividend growth rate slows, WestRock will be an attractive dividend stock for a long time to come.

In addition to a strong yield, WestRock offers a compelling valuation. The stock trades for just over 9 times our estimate for earnings-per-share this year, which compares very favorably to our estimate of fair value at 12.5 times earnings. That should provide a very nice mid-single digit tailwind to investors from a rising price-to-earnings ratio in the coming years.

In total, we expect 15%+ annual returns for WestRock from the combination of earnings growth, the very high current yield, and a rising valuation.

#2:  AT&T (T)

AT&T traces its roots to Alexander Graham Bell in the 1870s, and the current form of the company is the result of the former SBC acquiring AT&T in 2005, and changing its name. Today, the company is the largest communications company in the world, operating a diversified model that includes wireless service, WarnerMedia, advertising, broadband, video, and other services globally. The stock boasts a $246 billion market capitalization.

The company’s Q1 results from late April showed a 17.8% gain in revenue year-over-year, primarily driven by the company’s WarnerMedia segment. However, wireless service revenue was offset by declines in other segments, so without the growth from WarnerMedia, revenue would have fallen fractionally.

Adjusted earnings-per-share rose slightly, adding a penny from 85 cents to 86 cents against the year-ago period. We expect AT&T to produce $3.60 in earnings-per-share this year, which would represent a low single digit gain against last year.

AT&T has struggled to grow earnings-per-share in the past, the combination of a rising share count and slowing growth in its legacy businesses. The company’s additions in the past few years of DirecTV, Time Warner, and others has helped build the pipeline for future growth, but thus far, declines in the legacy businesses are partially offsetting that growth. To that end, we see ~3% annual growth from AT&T in the coming years as its wireless business is performing relatively well, but broadband and hardline phone service struggle.

AT&T’s most attractive trait as an investment, however, is not its growth potential, but its yield. The current $2.04 payout is good for a 6% yield on the stock, which is enormous compared to most common stocks, and three times that of the US 10-year Treasury. AT&T has always boasted a strong yield but the current low valuation of the stock has the yield in a much better spot than it normally is. Growth in the payout will be in the low single digits for the foreseeable future, so AT&T is not a dividend growth story. However, if offers a REIT-like yield with some upside potential.

In addition, AT&T is cheap. The stock trades for just over 9 times this year’s earnings against our estimate of fair value at 12 times earnings. That should provide a nice tailwind to investors in the coming years as the valuation reverts back towards its historical norms.

Putting this together means AT&T offers investors ~15% total annual returns in the coming years, with nearly half of that coming from the outstanding current yield. We like AT&T very much for its high yield and long-term dividend prospects.

#1 – Tanger Factory Outlet Centers (SKT)

Tanger Factory Outlet Centers is one of the largest owners and operators of outlet centers in the US and Canada. It owns or has an interest in 40 upscale outlet shopping centers in North America totaling more than 14 million square feet. The trust’s market capitalization is $1.5 billion today.

Tanger released Q1 results in early May and funds-from-operations, or FFO, fell from $0.66 to $0.57 year-over-year. Funds available for distribution came to $0.54 per share during the quarter, meaning the quarter’s dividend payout ratio was just 65%, which is quite low for a REIT.

Portfolio occupancy declined fractionally to 95.4%, which is still a robust level of occupancy. Portfolio net operating income declined 0.8% but same-center NOI was down slightly less, falling 0.5%. The trust completed the sale of four non-core outlet centers during the quarter, generating $130 million in proceeds, which was used to repay outstanding line of credit balances.

We see 4% annual growth in the coming years for Tanger as rent adjustments and new leasing activity should drive low single digit long-term gains. In addition, Tanger can continue to build its portfolio of properties over time.

Source: Investor presentation, page 15

Indeed, this slide shows Tanger’s operating metrics, which are quite favorable. The trust’s blended straight-line rent spreads have grown nearly 5% in the past year, while tenant sales per square foot are performing well, which should help drive strong occupancy. In addition, Tanger’s occupancy cost ratio is quite low at 10%. We think this paints a favorable long-term picture for Tanger’s fundamentals.

The current payout of $1.42 is good for a whopping 8.8% dividend yield, which is quite high in absolute terms, but is also very high against Tanger’s prior yields. That means the stock is offering an extremely attractive proposition for income investors today. The dividend is well-covered, so we don’t necessarily see any safety issues either; Tanger therefore looks compelling from an income perspective.

The valuation is attractive as well, trading for just over 7 times this year’s FFO, against our fair value estimate of 12 times FFO. In total, we see 23%+ annual returns for Tanger moving forward thanks to the huge yield, low valuation, and decent growth prospects.

Final Thoughts

We like these three stocks because they all have decent growth prospects, strong fundamentals, and high yields. For income investors, these stocks represent excellent choices when searching for strong current yields, and we rate them all a buy.

The post 3 Of Our Top High Dividend Stock Selections Now appeared first on The Dividend Guy Blog.

June Dividend Income Report – Is investing like Groundhog Day?

In September 2017, I received slightly over $100K as a result of the commuted value of my pension plan. I decided to invest 100% of this money into dividend growth stocks. Each month, I publish my results. I don’t do this to brag, I do this to show you it’s possible to build a portfolio during an all-time high market. The market will crash… eventually. In the meantime, I rather cash some juicy dividends!

Is investing like Groundhog Day?

As I spend most of my days reading financial news and analyzing stocks, I skim through lots of headlines. At one point, it really feels like investing is like Groundhog Day; we constantly announce the next bad thing. Therefore, no matter how the stock market really does, we always have a feeling it’s not doing so well (or it’s about to crash).

July 2018 was the highest point of the TSX, and the S&P 500 started its correction in September of the same year. Suddenly, the world was about to crash and burn back in December. Now, nobody seems to realize 2019 recovered all losses and more.

When we were at the peak last year, I didn’t do anything special. I followed my investing strategy.

When we hit the severe correction in November-December, I didn’t do anything special. I followed my investing strategy.

Today, the market is back up close to peak levels. I won’t do anything special. I follow my investing strategy.

I manage a portfolio based on dividend growth investing principles. Companies I hold constantly increase their payout. My portfolio value eventually goes up throughout time. I stick to the plan. I guess investing is like Groundhog Day!

Let’s look at how last month went.

The numbers are as of July 1st, 2019 (during the afternoon):

Canadian portfolio (CAD)

Company Name Ticker Market Value
Alimentation Couche-Tard ATD.B.TO $7,087.25

 

Andrew Peller ADW.A.TO $5,706.25
National Bank NA.TO $4,976.80
Royal Bank RY.TO $6,244.20
CAE CAE.TO $7,042.00
Enbridge ENB.TO $7,615.29
Fortis FTS.TO $5,119.29
Intertape Polymer ITP.TO $5,523.00
Lassonde Industries LAS.A.TO $4,130.28
Magna International MG.TO $4,561.20
Cash $1,329.47
Total   $59,335.03

My account shows a variation of +$1,304.83 (+2.2%) since the last income report.

When I looked at my June 2018 report, I noticed this was the time I sold my position in Shopify (SHOP.TO) and Canopy Growth (WEED.TO). Both were volatile plays where I had put a stop sell. Looking back today, I realize I “cashed a good profit”, but I left lots of money on the table! At least, my current holdings didn’t do bad either (with less volatility).

Andrew Peller announced its 7th dividend increase

Andrew Peller (ADW.A.TO) posted a flat quarter for its sales, but their year-to-date numbers are up by 5%.  Sales during the second half of the fiscal year 2019 were impacted by increased competition from new low-priced imported wines and market softness primarily in Western Canada. Management has made investments in the launch of new products, such as Wayne Gretzky No. 99 Rye Lager, and a comprehensive marketing campaign for Peller Family Vineyards to drive future sales growth. The company uses its cash flow to increase its dividend by 4.8% and to pay down its debts (from $171.1M to $154.8M at March 31st). It’s their 7th consecutive dividend increase. Andrew Peller is part of the “3 Canadian underdogs” dividend investors should consider.

CAE is skyrocketing… this is not a simulation!

CAE (CAE.TO) is literally flying with a record quarter as the company surfs on a strong aerospace industry. Annual Civil training centre utilization was 76%, reflecting continued strong usage of existing simulators and the recent deployment of additional simulator capacity to meet new demand from customers. Defence booked orders for $265.0 million. Notable wins include a contract with Boeing to provide a P-8A aircraft simulator for the Royal Air Force and simulator upgrade programs with the U.S. Navy. CAE Healthcare reached several strategic milestones during the year, strengthening its position as the innovation leader in simulation-based healthcare education and training.

Intertape Polymer is fueled by acquisitions

Intertape Polymer (ITP.TO) posted a solid revenue jump as revenue increased 17.1% to $277.8 million, primarily due to the Polyair, Maiweave, and Airtrax acquisitions. EPS dropped by 5%. The decrease was primarily due to an increase in SG&A, an increase in financial costs, mainly due to higher average debt outstanding related to the Polyair Acquisition; Greenfield manufacturing facilities in India;  higher average cost of debt, including the impact of the Senior Unsecured Notes, and an increase in income tax expense. Cash flow from operations improved due to a larger decrease in accounts payable in the first quarter of 2019.

You can read about how I managed my portfolio as a Canadian (e.g. mixing both CDN and US investments): Investing the Canadian Way – Tricks I use to Boost My Returns. I discuss my sector allocation, how I manage currency fluctuations and my favorite sectors.

Numbers are as at July 1st, 2019 (during afternoon):

U.S. portfolio (USD)

Company Name Ticker Market Value
Apple AAPL $6,223.56
BlackRock BLK $6,576.57
Disney DIS $6,343.20
Garrett Motion GTX $45.48
Gentex GNTX $5,731.65
Hasbro HAS $4,871.85
Lazard LAZ $3,507.27
Microsoft MSFT $8,103.60
Resideo Tech REZI $107.10
Starbucks SBUX $7,150.62
Texas Instruments TXN $5,815.00
United Parcel Services UPS $3,794.35
Visa V $8,665.00
Cash $707.60
Total   $67,642.85

 

The US total value account shows a variation of +$6,350.61 USD (+10.4%) since the last income report.

Months on the US market are like a roller coaster. After losing 7% in May, I’m up 10% for June.  This is one of the reasons why I don’t give too much attention to what’s happening in my portfolio from one month to another. I look at it, I record it on this blog, but I’m not going to scream “panic” or “genius” for each movement. I rather keep my eyes on the horizon and enjoy the sunset.

My entire portfolio quarterly updated!

Each quarter, we run an exclusive report for Dividend Stocks Rock (DSR) members called DSR PRO. The PRO report includes a summary of each company’s earnings report for the period. We have been doing this for an entire year now and I wanted to share my own DSR PRO report for this portfolio. You can download the full PDF giving all the information about all my holdings. Results have been updated as of June 21st.

Download my portfolio Q2 2019 report.

Dividend income: $445.27 CAD (+39.5%)

This month included a major improvement compared to last year. One of the reasons is the regular dividend increase coming from my holdings (detailed below). However, a good part of my dividend increase for this month comes from a few more additions. When I sold my positions in Shopify and Canopy Growth, I replaced them with dividend payers. This explains why June is my second highest dividend month so far in this portfolio. Here is the dividend growth detailed. The growth is compared to June 2018 (not a necessarily a recent dividend increase):

  • Fortis: +5.9%
  • Enbridge: +10%
  • Magna International: +13.5%
  • Lassonde: -26.5%
  • Visa: +19%
  • UPS: +5.5%
  • Microsoft: +9.5%
  • Currency factor: flat.

If you wonder what happened with Lassonde, I detailed it here.

When you combine both dividend growth and capital growth in this portfolio, you get great results! I never been looking for high yielding stocks. I think the balance between dividend growth and capital growth is important in one’s portfolio.

Canadian Holdings payouts: $285.73 CAD

  • Fortis: $44.55
  • Enbridge: $118.82
  • Magna International: $33.90
  • Lassonde: $12.50
  • Intertape Polymer: $55.96
  • CAE: $20.00

U.S. Holding payouts: $121.82 USD

  • Visa: $12.50
  • UPS: $35.52
  • Microsoft: $27.60
  • BlackRock: $46.20

Total payouts: $445.27 CAD

*I used a USD/CAD conversion rate of 1.3096

Since I started this portfolio in September 2017, I have received a total of $5,142.14 CAD in dividend.  Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added into his account (it’s a LIRA). Therefore, all dividend growth is coming from stocks and not from additional capital.

Final thoughts

My portfolio had a great ride so far in 2019. This recovery is so strong that I can now take a 27% hit on my portfolio I would still have a few hundreds over my original amount. This shows you how it’s impossible to know when and by how much the market will crash.

If you are worried it will happen, I suggest you read “Sell Now – It’s About Time Someone Tell You This”. This article will tell you what you should toss in your portfolio and what you should keep.

The post June Dividend Income Report – Is investing like Groundhog Day? appeared first on The Dividend Guy Blog.

Three Canadian Companies We Rarely Talk About (But Should be in Your Portfolio)

  • The Canadian Market is a lot more than just banks and energy stocks.
  • There are many great dividend-paying stocks in other sectors, notably in consumer, cyclical and defensive stocks.
  • I’m sharing three good ideas along with their investment thesis.

Last week, I wrote an article about some struggles faced by Canadian investors. One of the most common challenges for Canadians is diversifying their portfolio by venturing outside of their borders. After a few classics, it could become difficult to find growth or high-yielding stocks. Additionally, I feel there aren’t enough articles covering Canadian dividend stocks. It’s hard to get detailed opinions on many “Canadian dividend underdogs.” Here are some of my favorites:

canadian dividend stocks

Always Buying More Wine

If you have been following my blog for a while, you will know that there are two things that I enjoy equally in life (besides my family, of course):
1. Getting paid by companies in which I hold shares.
2. Drinking wine with my wife and friends.

Well, I found the perfect match with this winemaker that has a thirst for acquisitions. Andrew Peller (ADW.A.TO), founded in 1961, has become one of the most respected Canadian winemakers, owning wineries in British Columbia, Ontario and Nova Scotia. ADW not only produces its own wine, but also markets it along with other products. The company owns several brands, including Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Copper Moon, Kalona Vineyards Artist Series VQA Wines, and Red Rooster. Currently, they own an estimated 10.2% share of their total wine market and a 37% share of domestic wines.

andrew peller
The Reason Why I Like It

The wine market has been quite stable in Canada over the past few years. By using stats from the International Organisation of Vine and Wine (OIV), you can see that Canadian wine consumption is increasing, but not at a flabbergasting rate:

wine consumption

The first figure shows about a 17% increase in wine consumption over eight years. However, changes in wine production over the course of eight years, shown in the second figure, show stagnation in the current market.

wine production
In other words, there hasn’t been much growth.
So, Mike, why are you so excited by Andrew Peller?

This situation offers a “larger-players-take-all” situation. This is where Andrew Peller kicks in with their 10% market share in the Canadian industry. As a larger player in a highly fragmented market, ADW has the size and balance sheet to grow through acquisitions. $200 million in acquisition later (17 transactions since 1995), Andrew Peller has built a solid expertise in acquiring and integrating new brands. The company enjoys strong brand recognition and customer relationships. The winemaker is also using its marketing expertise to diversify the products by offering premium craft beers and whiskies (Wayne Gretzky’s brand).
The company pays a small yield (~1.50%), but shows a dividend annualized growth rate of ~9% over the past five years. ADW maintains a low payout ratio as management carefully manages its cash flow. The company is then able to keep growing through acquisitions while raising its payouts with a high single-digit to low teens growth rate.

Duct Taped to My Portfolio

If there is one thing that is as reliable as a strong dividend stock, it’s probably duct tape. While I was travelling throughout Central America, I would tell my kids that there was nothing a roll of duct tape couldn’t fix. I guess this is why I like Intertape Polymer Group (ITP.TO) so much.
Intertape Polymer Group manufactures and sells a variety of paper and film-based, pressure-sensitive, and water-activated tapes, as well as polyethylene and specialized polyolefin films, woven coated fabrics, and complementary packaging systems for industrial and retail use. ITP employs approximately 3,400 employees with operations in 27 locations, including 20 manufacturing facilities in North America, two in Asia, and one in Europe.

intertape polymer

The Reason Why I Like It

With the rise of online shopping, the packaging industry should benefit from this tailwind. ITP expects to reach $1.5 billion in sales by 2022. Intertape is number one and number two in its main market in North America and shows international expansion opportunities. Management also expects to grow by acquisition to expand its current line of products, consolidate its activities, and open additional doors in international markets. In August 2018, the company completed the acquisition of Polyair Inter Pack for $146 million. This was a strategic move to expand ITP product offering while opening doors to create cross-selling opportunities to PIP’s clients.
ITP pays its dividend in USD (currently $0.14USD/share) and the company shows solid payout ratios. This is why Canadian investors will feel that the dividend shows considerable fluctuation. The dividend hasn’t increased since late 2016, but the company has used its cash for acquisitions to increase its revenue. In the meantime, you can enjoy a solid ~4.2% yield that is paid in USD (it’s great if you spend your winter in Florida!)

Built for Distance

My last stock pick comes as a gift as shares plummeted not too long ago; however, the dividend is going the distance. Founded in 1930, New Flyers (now NFI Group) (NFI.TO) is the number one bus original equipment manufacturer (OEM) and parts supplier in North America. The company fabricates, manufactures, distributes, and operates service centers in the U.S and Canada. New Flyer is using technology to offer evolved solutions such as drive systems, including clean diesel, natural gas, diesel-electric hybrid, trolley electric, battery electric and fuel cell electric. The company now counts 6,000 workers across 31 facilities.

new flyer

The Reason Why I Like It

NFI is a classic “growth by acquisition” business where investors count on management’s next move to generate additional growth. Most recently, the world’s biggest manufacturer of double deck buses and leading British bus and coach builder, Alexander Dennis Limited (ADL), was acquired by NFI Group for around $405 million. The company sees immediate synergies and will also enable NFI to expand its activities offshore. There is additional growth to be captured in this market as bus transportation continues to grow. As the largest player on the playground, NFI enjoys strong brand recognition and constant sales.
Shares dropped in 2018 and NFI now offers ~4% yield and was recommended in my DSR buy list in May 2019 (for ~15% gain since then). As any automobile/truck company, NFI evolves through cycles. It is currently trading at interesting value and you will get paid to wait.

Final Thoughts

Those three companies are great examples of Canadian dividend-growers you can use to improve your portfolio. I currently hold shares of ADW and ITP, but I didn’t pull the trigger on NFI (because all of my money was already invested…. can’t catch them all!).

If you enjoyed this article, I have seven other Canadian picks for your portfolio here.

Disclaimer: I hold ADW.A.TO and ITP.TO in my dividend portfolio.

The post Three Canadian Companies We Rarely Talk About (But Should be in Your Portfolio) appeared first on The Dividend Guy Blog.

What is it to be a Canadian Dividend Investor?

I remember my first trades on the market back in 2003 when I was 22 and starting both my career in the financial industry and my investing journey. I was fortunate enough to avoid high fees from mutual funds and start directly with an online broker account.

The first thing I did after opening it was to buy shares of Power Corporation (POW). My investment thesis? I worked for a business unit in partnership with many of POW companies. I thought it was smart. (You can see how I evolved into a more articulate investor since then! Haha!)

After pulling out a few stock filters out on the Canadian market, I realized how difficult it was to build a 100% Canadian portfolio. Banks, telecoms, energy and basic materials stocks were omnipresent among my holdings. While those were the good years to be in the market, I felt limited in my options.

As I experienced various strategies and read many books and articles, I’ve built a complete and meticulous investing process. While I prefer to invest a good part of my money in the U.S. market (for diversification and potential), I am now able to find some hidden gems in the Canadian market.

Today I wanted to share my view on what it’s like to be a Canadian investor. I’m sure you will recognize many of the goods sides and struggles we face. I’ll also tell you how I managed them.

Source: Pixabay

Limited Sector Allocation

First, investing in the Canadian market initially meant being stuck with 50% of the market cap concentrated into 2 sectors: Financials and Energy. Financials are led by the Big 5 (the 5 largest Canadian Banks) who are renowned to represent one of the strongest and most stable banking systems in the world. Then, you have a few great insurance companies such as SunLife (SFL), Manulife (MFC) and GreatWest Lifeco (GWO) and a few more conglomerates such as Brookfield Assets Management (BAM) and Power Corp (POW).

The energy sector finds its power mostly in Northern Alberta with the oil sand. There were the good old days of the oil income trust until the government shut down this plan on Halloween (yes, it was a horror story for many income seeking investors!). Once I was done with those two sectors, I had only 50% of the market capitalization left to build a solid portfolio:

Source

If you are a dividend investor like me, you will find it very hard to find dividend growers among basic materials, technology and consumer (both staples and discretionary). The problem with consumer stocks is usually their very low yield. Still, I found a few interesting picks in those sectors throughout time. However, you won’t find any Disney (DIS), Starbucks (SBUX) or Coca-Cola (KO) among Canadian companies. The most important problem with most sectors is that very few businesses have international exposure.

Don’t fall for energy & basic materials

My first thought when I look at the TSX sector allocation is “don’t fall for the trendy stocks”. Many energy and materials companies have their 15 minutes of fame from such things as an oil boom, a new mine,  or explosive demand for a commodity. That kind of news makes any investor’s dream as the stock usually skyrocket and making a small fortune for shareholders. I was part of the dreamers too before I became a dividend growth investor.

After making lots of money from oil income trust (my 7-year-old could have made those picks for me), I decided to make a play on a big news. I bought a bunch of shares of a small mining company (penny stock) before it posted their exploration results. This worked for a few months as I was making over 100% return and then, boom! One day I came back from lunch and I had lost 50% of my initial investment. The stock plummeted to new lows since the company discovered… nothing.

While not all play or “do or die” investments, this story taught me a lesson: “commodities related businesses are volatile”. Many Canadians complain they haven’t had much of a return in the past 5 years. When you look at their portfolio, you realize that the bulk of their money is invested like the TSX60… Lots of energy and resources stocks.

Struggling with the U.S. currency rate

The best way to improve my portfolio diversification as a Canadian was to look elsewhere. As I mentioned, the Canadian market doesn’t include many  international consumer staple, cyclical, industrial or tech stocks. I recently explained why I would rather invest in US stocks to cover international diversification. We are talking about the world’s largest, most stable and most diversified stock market.

The problem we face as Canadians is that we need lots of loonies to even buy a Happy Meal!

Source: Ycharts

For once, I must admit that the two times I converted CAD to USD was pure luck. As you can see on the graph, it seems that I read the market correctly twice. But nothing is far from the truth. After buying The Dividend Guy Blog in 2010, I decided to build a dividend growth portfolio between 2011 and 2012. This was when I invested massively in US stocks through my retirement account (RRSP).

Then, when I quit my job in 2017, I received my money in September of the same year. My strategy included a 50% USD portfolio. I was right on time as the currency lost momentum a few months before I started investing.

Besides luck, I would have invested no matter the currency rate. When I look at the fluctuation over the past 10 years, I see a 21% unfavorable headwinds for Canadian. That’s a 1.92% annualized rate. When you look the difference in returns when you compare both markets, you can see that the 1.92% difference is nothing compared to the expected return:

Source: ycharts

I know, it’s only 10 years of historical returns, and it’s not worth writing an academic paper about it. Still, in the most recent 10 years, investing in the US market was the right thing to do. I’m ready to bet on that strategy for the next 10 years. If you think the Canadian market will outperform the US market by more than 100% in the next decade, let’s bet $2 (USD) on that. But this article isn’t about the US market, so let’s go back to the Canadian stocks’ universe.

A few easy picks to start with

For any Canadian investors, there are a few easy picks that pretty much will agree on to start a portfolio. We have a few sectors where we are just amazing:

Banks (my ranking here)

Evolving in an oligopoly protected by the government, Canadian banks use their core business to generate strong cash flow and growth through various strategies. Some use capital markets and wealth management (RY.TO, BMO.TO, NA.TO), while othes go after the U.S. market (TD.TO) and Latin America (BNS.TO). They all show strong balance sheets, decent yield (~3-4%) and steady dividend growth (mid to high single digits).

Telecoms (my favorite is Telus (T.TO))

Similar to the Canadian banking playground, telecoms evolve in  “closed markets” where 3 players split over 80% of the wireless sugar pie. There is a willingness from the government to open doors to more competition, but the Canadian market is a challenging adventure for many outsiders (ask Target (TGT) what they think of us!). Canadian telecoms offer small yield (yet still around 4-5%) compared to AT&T (T) and Verizon (VZ), but their growth perspectives are a lot more interesting.

Railroads (Canadian National Railway (CNR.TO) is by far my favorite in this sector).

You can’t really compete against railroads. While they are capital-intensive businesses, railroad operators are “alone” in their market as nobody can use their asset to transport goods and merchandise. They offer lower yield (roughly 1%), but are great stabilizers in one’s portfolio.

Utilities (Emera (EMA.TO) and Fortis (FTS.TO) are perfect for a retirement portfolio).

There are several strong utilities in the Canadian landscape. Many of them used the “banking strategy” where they used their core assets in Canada to generate cash flow and expand their business in other countries. Most of them are focused on green energies making them smart choices for the future, too.

REITs

I do not expect to touch this money for at least 30 years, so I am not actively looking to generate income. Canada shows a stable economy and one of the most solid banking systems. This is a great foundation for building healthy REITs in many sub-sectors. You can then find retirement, apartment, industrial REITs showing great yield, and dividend growth perspective. Among my favorites, you will find Brookfield Property (BPY.UN.TO), CT REIT (CRT.UN.TO) and Granite REIT (GRT.UN.TO).

Once you have picked a couple of stocks form these 4 sectors, you end up with 8-10 strong dividend payers that represent a solid core portfolio. If you don’t want to look pass the southern border to complete your portfolio, I might add a few more suggestions along the road. They are sometimes showing low yield, but they are all about dividend growth.

Dividend growth for Canadians

I guess the biggest challenge for Canadian investors is to find a considerable yield (3-4%) in various sectors. Once you have filled your portfolio with the 4 sectors I’ve mentioned, you still have several untouched industries such as consumer staples, consumer cyclical, tech and a large part of the industrial sector.

After further research, I was able to find interesting companies in other sectors. Most of them show lower yield than their American peers. However, if you combine those companies with the core portfolio we discussed earlier in this article, you can find a great balance between yield and growth. Here are two of my favorites (you can get more Canadian picks ideas here).

Alimentation Couche-Tard (ATD.B.TO)

Alimentation Couche-Tard is the largest convenience store operator in Canada and 2nd largest in North America. While constantly expanding its presence in the US and Europe, it successfully built a convenience store that includes daily-use products. Many stores are also combined with fuel service stations. ATD operates 12,081 stores (7,863 in North America, 2,708 in Europe and 1,510 internationally). Instead of simply selling chips and beers, ATD focuses on a superior offer including fresh food, private labels and strong product concept offerings.

An investment in ATD is definitely not for an income producing stock. However, if you are looking at the long-term, your dividend payouts will grow in the double digit for a while, and you will enjoy a strong stock price growth. ATD’s potential is directly linked to its capacity to swallow and integrate more convenience stores. Management has often proven its ability to pay the right price and generate synergy for each deal. ATD shows a perfect combination of the dividend triangle: revenue, EPS and dividend strong growth.

Andrew Peller (ADW.A.TO)

Andrew Peller owns wineries in British Columbia, Ontario and Nova Scotia. ADW not only produces its own wine, but also markets it along with other products. It owns several brands like Peller Estates, Trius, Hillebrand, Thirty Bench, Sandhill, Copper Moon, Kalona Vineyards Artist Series VQA wines and Red Rooster. Currently it has an estimated 14% share of its total wine market and a 37% share of domestic wines.

Andrew Peller is known to grow its revenues through acquisitions. Since 1995, management invested over $200M to purchase 17 vineyards. The company built a solid relationship with provincial liquor stores, but also maintained company-owned retail stores in Ontario. Andrew Peller is a dominant player managing a strong brand portfolio. The company posted a record year in 2018 and management has invested a lot during that year. We expect those investments in branding systems planning and production efficiency will translate into stronger earnings in the upcoming years.

 

Are you looking for more Canadian picks ideas? register to my new webinar (free instant replay if you register after June 27th). Click on the image below:

The post What is it to be a Canadian Dividend Investor? appeared first on The Dividend Guy Blog.