For the last episode of this series, Mike and his co-host review the REIT and the Industrial sectors. While these two sectors can seem uninteresting, they both include some well-known and solid companies that can be great adding to a dividend growth investor’s portfolio.
Get the best of REITs and Industrials; listen now!
Psst!! Scroll down a little to get the links to related videos and articles!
While REITs are part of a shortlist of sectors that are perfect for retirees or other income-seeking investors, it is important to understand that they cannot be analyzed using the same metrics as other sectors.
The Funds from Operations (FFO) and Adjusted Funds from Operations (AFFO) are probably the most useful tools to analyze a REIT’s financial performance. Those two metrics replace the earnings and adjusted earnings for the regular stock. While those are different, it’s all about cash flow and the REITs’ ability to sustain their dividend payments. We can find those metrics inside each REIT’s quarterly report and subsequent press release. It is important to not only follow the FFO/AFFO in total but also to follow the FFO/AFFO per unit of ownership.
The use of the loan to value ratio (LTV) is a great tool to analyze the REIT’s future ability to raise low-cost capital. The LTV is easy to calculate from the financial statement, as you only need 2 measures of data:
You certainly don’t want to invest in a REIT showing a high LTV. This means that their credit rating may be at risk and the price for future debt will be higher. In other words, it could mean less money for future dividends.
The last metric you must follow that is specific for REITs is the Net Asset Value (NAV). The NAV (usually shown by units) can be translated to the equivalent of a Price to Book ratio.
The idea is to compare a few REITs from your list against one another. This is how you should be able to find the ones with the best metrics. A lower than the industry NAV is either a riskier play or a value play. The AFFO and LVT will tell you which one it is.
Now, as they can be hard to memorize from the podcast, here are the industries for each sector.
Mike’s favorite picks in the REIT sector have also been discussed in the videos below.
During the episode, we mentioned some concepts that you may not be familiar with: the Dividend Triangle, Sector Allocation, and How and When to sell losers. You can relate to the links below to get more information.
[Podcast] DGB 02: What The Hell is The Dividend Triangle?
[Podcast] DGB 08: Sector Allocation – How Many Sectors Should You Have in Your Portfolio and Which Ones?
Why You Should Follow Your Stocks Quarterly – March Dividend Income Report
The post [Podcast] DGB 11: Get the Best of Each Sector Series – REITs and Industrials appeared first on The Dividend Guy Blog.
In September of 2017, I received slightly over $100K from my former employer which represented 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 is possible to build a lasting portfolio during an all-time highly valued market. The market will inevitably go down, as it did in 2020. But I continued to enjoy cashing consistent and growing dividends despite that negative market action! And, most importantly, I stayed fully invested in the market and have enjoyed the market recovery in 2020 that has continued into this new year of 2021.
Let’s start with the numbers as of April 7th, 2021 (before the bell):
Total return since inception (Sep 2017- Mar 2021): 90.04%
Annualized return (since September 2017): 19.62%
SPDR® S&P 500 ETF Trust (SPY) annualized return (since Sept 2017): 17.03%
iShares S&P/TSX 60 ETF (XIU.TO) annualized return (since Sept 2017): 10.46%
A lot of dividend investors apply the good old “buy & hold” technique and take great pride in showing patience with their laggards. After all, if you pick a company after doing your due diligence, it’s only natural to give management some time to work their magic. When I add a new stock to my portfolio, I don’t follow it closely in the following months. The work was done prior to the trade and then, you must trust the process.
However, part of that process is to review each of my holdings quarterly. I want to make sure each of them is in line with my investment thesis. But, reading 30+ quarterly financial statements is a daunting task. So, I’ve designed a tool to help us stay on top of things each quarter. I’ve entered all my holdings into the new DSR PRO portfolio builder (this includes my pension plan, but also all my other accounts) which gives me my asset allocation, but also PRO ratings, and dividend safety score for each stock.
When I reviewed my portfolio, I immediately noticed two things:
#1 PRO ratings on my stocks look very good as most of them are buys or exceptional buys.
#2 I have some work to do on stocks with weaker dividend safety scores.
I know upfront that the red portion (dividend safety score of 1) is linked to my shares of Disney (DIS) and CAE (CAE / CAE.TO) which both have suspended their dividends in 2020 amid the pandemic. So that’s fine and I’ve made my peace with those. However, this time I was also showing a stock with a dividend safety score of 2! I gasped and then went through my listing to identify this bad boy.
I discussed in my last report that I was disappointed by Hasbro. The company was set for a great future, but several events hurt the company. The Toys’R’Us bankruptcy, the pandemic, and the acquisition of eOne were too much to handle and management has failed to increase the dividend since 2019.
This explains the downgrade in Hasbro’s dividend safety score. Off course, the company has a solid balance sheet and the dividend isn’t at risk. However, my investment model is based on a strong dividend triangle:
#1 Revenue increased a bit, but most of it is linked to the addition of eOne.
#2 EPS is going sideways.
#3 The Dividend growth policy has been shelved for now.
Hasbro still has some options to generate growth, but I’ve decided not to hold onto it. The stock is also part of some of our portfolios at DSR and we will proceed with changes in the coming weeks. As you can see, I’m not in a hurry to make trades. I would rather take my time to ensure a logical move.
One good reason to wait and keep underperforming stocks is that you get paid for your patience. If the dividend comes in, you can look the other way. However, this “dividend bribe” is also taking opportunities away from you. In Hasbro’s case, I didn’t lose money when I sold. In fact, the dividend has protected my money since 2017. Unfortunately, when compared to the S&P 500, I realize I could have done so much better.
We have discussed this several times as it sucks to sell at a loss. We would like to keep our stocks forever because we see the potential. But, when I look at my current asset allocation, I have become aware of being heavily invested in consumer cyclical (22.6% of my portfolio).
Nevertheless, I have waited until HAS has shown 6 consecutive quarters with the same dividend to pull the trigger on the sale. I had hoped that with the integration of eOne, the company would generate growth again. In fact, management expects double-digit revenue growth for 2021. One part of me fears that I may regret selling “too early”. Nobody wants to sell a stock and see it surge a few months later. Hence the procrastination.
How did I finally convince myself to pull the trigger? I used my favorite trick which is the intriguing next buy!
There is nothing better than getting excited about another company to trigger action. While I didn’t like Hasbro that much, I wasn’t in a hurry to sell it either. I was running on “hope”. Did I ever tell you that “hope” is a bad investment strategy?
Then, I thought of my recent article about renewable energy. I then looked more closely and reviewed each company I had mentioned in the video below. The industry growth potential is undeniable and it’s far from being linked to some “hope”. Overall, I may be quitting too fast on Hasbro, but I’m confident that my new pick will do as good (if not better) going forward.
I decided to add Algonquin (AQN.TO / AQN) to my portfolio.
AQN trades on both the Canadian and US markets as well. It pays its dividend in USD. What I like the most about AQN is its balance between its regulated business and its renewable energy arm. The company generates steady cash flow from its gas distribution lines, water connections and electric distribution lines. The regulated services group shows over 1 million customer connections that are primarily in North America.
Then, it grows its renewable energy business with investments in solar panels, wind turbines and hydroelectric generators. Its diversified assets of hydroelectric, wind, solar, and thermal facilities have a combined gross generating capacity of approximately 1.5GW, with approximately 85% of the energy sold through long-term contracts averaging 13 years in duration.
With a budget of $9.4B in CAPEX, AQN has several new projects coming on line through 2024. These include more acquisitions, pipeline replacements and organic CAPEX. The utility counts on its regulated businesses to grow its revenue once those projects are funded. AQN shows a double-digit earnings growth potential for the foreseeable future but expect a short-term slowdown due to the current recession.
Two weeks ago, I followed the ViacomCBS (VIAC) debacle. I bought some shares in late March in my Retirement (RRSP) account. The stock price started to decline after the announcement of an equity issue of Class B common shares and mandatory convertible preferred shares. The arrival of 20 million new shares was the first spark to a significant sell-off. Then, the stock continued to drop as Archegos Capital (a hedge fund) was forced to sell more than $20B in stocks on Friday amid a margin call. VIAC lost 50% of its value in a single week.
VIAC is working on its own streaming service. The raise of capital sparked the sell-off, but we think it was a smart way to cash in on a high valuation to support spending in its new streaming business. The media company is known to create blockbuster TV series, and let’s hope it continues to do so going forward.
Let’s look at my CDN portfolio. Numbers are as of April 7th , 2021 (before the bell):
|Company Name||Ticker||Market Value|
|Algonquin Power & Utilities||AQN.TO||6,993,57|
My account shows a variation of +$9,994.54 (+13.42%) since the last income report on February 1st. Most of the increase comes from the sale of Hasbro shares to invest in AQN.
Now that the earnings season is over, I have fewer updates for the Canadian stocks this month. However, here’s a big one for Sylogist. I know many doubts about this one due to its hectic earnings over the past couple of years. Patience is paying off big time now!
Sylogist… I told you so!
Here’s what I wrote last month:“In October, the company closed on a $40M credit facility that can be used for acquisitions, strategic initiatives, and general corporate purposes. Management is now looking for more acquisitions to bolster its business.”
Things are moving fast for Sylogist (SYZ.TO) these days. This stock has been on our buy list for a while now and patience has paid off!
First, Sylogist has received conditional approval to list its common shares on the TSX under the trading symbol SYZ. Final approval of the listing is subject to the company meeting certain customary conditions of the TSX. This will give the company more exposure and likely more market love.
Second (and most importantly), SYZ announced the acquisition of Municipal Accounting Systems for $37.8M. This is a perfect example of a bolt-on acquisition for the company.
Two things I got from the press release:
“…we expect it to be immediately accretive for Sylogist, growing both our top-line revenue and adjusted EBITDA run rates by approximately 20%.”
Bill Wood commented, “Not to be lost in the exciting news related to acquiring MAS, an expanded credit facility provides additional resources to readily pursue other strategic and transformative acquisitions.”
Here’s my US portfolio now. Numbers are as of April 7th, 2021 (before the bell):
|Company Name||Ticker||Market Value|
The US total value account shows a variation of +$1,211.44 (+1.3%) since the last income report on February 1st. Please note I transferred all my USD cash and the proceeds of my Hasbro shares sale to my Canadian account.
With the Hasbro Vs Algonquin trade, I’m able to reduce my exposure to US stocks and get closer to the 60% US – 40% Canadian stocks mix I had originally targeted for my portfolio.
Each quarter, we run an exclusive report for Dividend Stocks Rock (DSR) members who subscribe to our very special additional service 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 showing all the information about all my holdings. Results have been updated as of December 2020.
Download my portfolio Q1 2021 report.
I show a 6.2% dividend increase from March’s 2020 report. This is pretty good considering that more than 50% of my portfolio is invested in US stocks and that the currency exchange rate last year was 1.4158 vs 1.2624 this year! I also have Magna International (+7.5% dividend increase in the past 12 months) and Intertape Polymer (+6.8% dividend increase in the past 12 months) that pay in USD.
Here’s the detail of my dividend payments.
Dividend growth (over the past 12 months):
Canadian Holdings November payouts: $332.86 CAD
U.S. Holding payouts: $230.30 USD
Total payouts: $623.59 CAD
*I used a USD/CAD conversion rate of 1.2624
Since I started this portfolio in September 2017, I have received a total of $11,889.20 CAD in dividends. Keep in mind that this is a “pure dividend growth portfolio” as no capital can be added into this account other than retained and/or reinvested dividends. Therefore, all dividend growth is coming from the stocks and not from any additional capital.
After the first quarter of 2021, I’m happy about my results. I’ve sold UPS and HAS to rebalance my portfolio toward strong Canadian positions. In terms of returns, my Q1 2021 is lagging the markets’ performance. My portfolio is up 7.5% this year while SPY total return is at 8.98% and XIU at 11.09%.
Is this a problem? Only if you demand short-term results. It’s more than fair that my portfolio may lag a bit in 2021 after outperforming since 2017. After all, I have almost no exposure to the energy sector which is a big factor in the Canadian market performance so far this year.
In my opinion, short-term results don’t mean much. In fact, even a 3-5-year record isn’t enough to determine if an investing approach works. With most DSR portfolios dating back to 2013, we can start seeing the power of dividend growth investing. I know it feels like it may be magic, but it feels good to see it happening in real-time!
The post Why You Should Follow Your Stocks Quarterly – March Dividend Income Report appeared first on The Dividend Guy Blog.
Each month, we issue The Mike’s Buy List for our DSR members. They get our best ideas for both U.S. and Canadian dividend stocks. The first Friday of each month, they receive our top 10 growth and top 10 retirement (yield over 4%+) investment ideas.
Today, we’ll discuss two of the Canadian ideas among the list: Tecsys (TCS.YO) and Atco (ACO.X.TO).
Tecsys is engaged in the development and sale of enterprise supply chain management software for distribution, warehousing, transportation logistics, point-of-use and order management systems. It also provides related consulting, education, and support services. TCS serves healthcare systems, services parts, third-party logistics, retail and general wholesale distribution industries. Geographically, it derives most of their revenue from the United States and has a presence in Canada and other countries. Its only operating segment is the development and marketing of enterprise-wide distribution software and related services.
I personally bought shares of Tecsys in December of 2020. The stock surged as high as $65 and went down to the low $40’s. Its quarterly results disappointed the market that may have set the bar too high. TCS continues to focus on recurring revenues and reported a robust quarter. SaaS revenue increased by 89% to $4.7M in Q3 2021. Cloud, maintenance, and subscription revenues increased 26% to $13.4M. The performance was primarily driven by SaaS. Annual Recurring Revenue as of January 31, 2021 was up 20%. This shows strong and steady growth across the business
This small-cap (700M$ in market cap) shows much capital gain potential. TCS offers crucial software for any e-commerce business: a supply chain management software! Considering delivery fees and fierce competition in the retail world, optimizing your supply chain is a key element for any business shipping goods. Tecsys also helps large customers with complex distribution centers or in the healthcare business. With only 13% of the healthcare market share, there would appear to be much potential for growth. With over 1,000 customers and about half of their revenue coming from recurring contracts, TCS is creating a strong base for its future growth.
I also covered Tecsys and two other SaaS stocks that I like in the video below.
The growth potential is obvious and the TCS shareholders enjoy the hype. However, you should always proceed with caution with a small cap that sees its price skyrocket. When you look at the company’s PE ratio, you must hope Tecsys will grow their earnings rather quickly. Fluctuation is part of the deal when you invest in such a company. Expect more stock price volatility with this company. We like that TCS doesn’t have much long-term debt ($10M), but it won’t matter if the company must fight against giants in the tech industry. Being a small fish in the ocean of technology could be dangerous.
Atco Ltd is a Canadian holding company that offers gas, electric, and infrastructure solutions. The largest subsidiary of the company is Canadian utilities, which operates natural gas, electricity, and logistical services. Atco’s primary segments include electricity (generation, transmission, and distribution), pipelines and liquid, Neltume Ports and Structures and logistics. The firm mainly operates in Canada and Australia, along with some operations in the U.S, the U.K., and Mexico.
It seems that our overall play on utilities is paying off. Atco, along with ED, XEL and EMA.TO, performed well in March showing double-digit returns. It’s simply the market realizing that, once again, it has overreacted to interest rate increases. There was no notable news about Atco during March.
On February 25th, Atco released its quarterly earnings. The company did well with adjusted earnings up by 22%. Results were supported by stronger results in ATCO Frontec from additional customer work requests, in Neltume Ports from higher cargo volumes and margins, and in Canadian Utilities from cost efficiencies, growth in the asset base, and ongoing transition work related to the long-term contract to operate Puerto Rico’s electricity transmission and distribution system. During the quarter, Atco acquired the remaining 50% interest in the ATCO Sabinco S.A. joint venture partnership. With this strategic investment, ATCO Structures gained full ownership and control of its Chilean business.
Atco is known by Canadian dividend investors for its stellar dividend growth history. After selling its fossil fuel-based electricity business in 2019, Atco now concentrates on expanding its renewable energy business (Natural gas with 185MW, Hydro with 59MW and Solar with 3MW). The company has a CAPEX plan of $3.2B through 2023. Atco can count on a stable business model with 95% of its earnings coming from regulated utilities. It is also expanding outside of Alberta where its core business has been. They announced their participation (40%) in the acquisition of Neltume Ports in South America for $450M. We appreciate Atco’s plan to expand its business outside of Alberta. We think it’s a great move to diversify their business model. You can sleep well at night as your dividend is safe.
Atco has been growing rapidly over the past decade through various projects and acquisitions. The problem is their debt has followed a similar trajectory. ACO now has over $9B in debt but keeps a credit rating of A- due to its stable business and ability to generate cash flow. The economic slowdown in Alberta will have an impact on the company’s growth for the coming years. As Atco is investing massively in many projects at the same time, it will be interesting to see how management remains in control. Also, the market seems to be concerned all the projects won’t be as profitable as expected. As Atco shoots in all directions with several business segments and new acquisitions, the risks of making mistakes increase.
Having a buy list or a potential replacement list ready is great in order to take action. It is much easier to sell when you feel the excitement for a better holding.
Rating your holdings according to a simple, but efficient set of metrics will also solve your buy & sell dilemma. You will automatically identify the strong companies and weak companies in your portfolio. I’ve discussed my ranking system on my YouTube channel. Combined with a Buy List, this system can help you avoid paralysis by analysis.
The post Two Stocks on My Buy List: Tecsys (TCS.TO) and Atco (ACO.X.TO) appeared first on The Dividend Guy Blog.
It’d be hard to imagine today’s life without technology. Many stocks in that sector seem overvalued and many investors fear another tech bubble. In this episode, Mike and his co-host review the whole sector and share a simple guide to buying tech stocks.
Get the best of the technology sector; listen now!
As they can be hard to memorize from the podcast, here are the Technology sub-sectors.
During the podcast episode, Mike and Vero mentioned many stock picks that Mike recently discussed in more detail on his YouTube Channel. You can watch them right below!
Technology Sector: Expertise, Size and Reputation are Its Best Assets!
[Podcast] DGB 02: What The Hell is The Dividend Triangle?
The post [Podcast] DGB 10: Get the Best of Each Sector Series – Technology and a Guide to Buying Tech Stocks appeared first on The Dividend Guy Blog.
Mark the date of January 6th, 2021 as the infamous day where the U.S. Capitol building was attacked by insurrectionists. That day was the date of Joe Biden’s certification as the new President of the United States. It is also since that date that renewable energy stocks have fallen in value dramatically. Between January 6th and March 22nd, renewable energy stocks have fallen over 20%.
Many DSR members wrote to me asking what is happening. After all, while renewable energy companies have a hard time on the market, both the TSX (+9.4%) and S&P 500 (+4.5%) are doing well. The utility sector is lagging in general, but it hurts if you moved your money towards “the future” at the end of 2020.
Is this a classic case of “buy the rumor, sell the news” where investors who waited for Biden to be officially certified were late to the party? After all, Biden and his team have a climate change plan including around $2 trillion (we now hear about a $3T deal!) in investments, subsidies, or tax breaks for clean energy. This should be enough to stimulate this industry for a while. Well, as is often the case, it’s more complicated than this. Let’s dig deeper, shall we?
First things first, when you send me an email asking why company XYZ is down 20%, I always hit the pause button. First, please note that I cannot (legally) answer this type of question in a one-on-one email because I am not your Financial Advisor. I usually gather such questions and write a newsletter about the topic or discuss the subject in one of our monthly webinars. Second, I always look at the overall stock history before digging deeper as to why a stock is down 20% at any given moment in time. When you take a close look at the renewable energy sector you realize those companies have been on a solid bull trend for about ten years.
With many stocks showing more than 400% growth over the past decade, it’s only normal to see a “small correction” from time to time. Some investors that have ridden this wave over 10+ years may have simply decided to cash some of their profit for various reasons. Over the past three years alone most of these companies have seen their total returns of around 75% to 90% (Brookfield Renewable even offered 195% to its shareholders). You can’t expect stocks to show a 20%+ annualized return for extended periods. Sooner or later, a correction is unavoidable and will move the price closer to a “sane” level. This doesn’t mean there are no reasons why renewable energy utilities are having a hard time.
Here’s a complete list of all the clouds gathering around this industry:
As you can see, these dark clouds are mostly related to short-term events. Besides the interest rate situation (which management teams are used to dealing with), all clouds should disappear if you focus on the long game. And the only game I’m interested in playing as an investor is the long game!
Investing in renewable energy stocks makes sense as our countries are obviously going in that direction to meet our ever-increasing need for energy. I’ve discussed my favorite renewable energy stocks in this video below.
The race for renewable energy will continue over the next decade. While this will remain a sector of growth, there will be winners and losers. The competition will be fierce, and some companies will fail even if we all want to use cleaner energy. Keep in mind these businesses are capital intensive and not all management teams can manage debt efficiently. For this reason, focusing on a strong dividend triangle before you make your decision will ensure that you are about to acquire a quality asset.
The post The Renewable Energy “Bear Market”? appeared first on The Dividend Guy Blog.