Monday, April 4, 2016

Dividend Growth Stock Considerations for April 2016

Since my 20-month old son no longer enjoys sitting patiently in the shopping cart at the grocery store, but instead prefers to run up and down the aisles as fast as he can, my wife sent me by myself to do the weekly grocery shop yesterday. My wife knows that I used to grocery shop for myself in a spontaneous manner, browsing here and there, selecting whatever caught my eye. On the other hand, my wife is incredibly well organized, and because she risked eating steak and potatoes for every meal this coming week if she left me to my own method, she provided me with a very detailed list to follow. Even though my grocery shopping experience yesterday was pretty boring (I only picked up one thing not on the list), it was incredibly efficient to follow the list.

In the same light, heading into a new month with a small list of stocks I would like to purchase, along with target prices, simplifies my investment process. Although none of my four companies (Bank of Montreal, Cisco, Canadian Utilities, and Tanger) on my March shopping list hit their target price last month, there is no way I am heading into April without a list in hand. However, I do plan on holding over two of my companies from last month, Bank of Montreal and Cisco, at their same target prices, as I would like to complete my positions in each company. Onto the companies that I am strongly considering investing in this month.  

Bank of Montreal (TSE = BMO); Target Price = $70

Cisco Systems, Inc (NASDAQ = CSCO); Target Price = $24 

Granite REIT (TSE = GRT.UN); Target Price = $37

When researching my recent post on Canadian REITs With Growing Distributions, Granite leaped out at me as having the highest combination of yield plus 1-year distribution growth rate. As I dug deeper, I found the company had an investment grade rating of Baa2/Stable, a vacancy rate just north of 1% at YE15, and was priced pretty cheap with Price/FFO under 10X. Even with Magna (another investment grade company) accounting for 79% of rental revenue, I continue to think that Granite REIT offers excellent short-term (due to recent interest from a private equity buyer) and long-term potential (given the low P/FFO). I would welcome the opportunity to initiate a position in Granite in my TFSA or RRSP in April if it meets my target price.

QUALCOMM, Inc (NASDAQ = QCOM); Target Price =$49

Let me preface this write-up by saying, that I would really love to buy is Microsoft at around $48-$50, but my gut tells me Microsoft will not dip that low in 2016. Therefore, given I am underweight in Technology, I would consider adding QUALCOMM ("QCOM") to my collection of US technology companies with global exposure. At a high-level, I see QCOM as a conservatively capitalized (Debt/Equity = 36%), free cash flow generating (FCF =~ $5B 12-months YTD), financially stable company (A+/Stable, A1/Stable), who recently grew their dividend by over 10%. The company is trading near 17X last year's earnings, which is reasonable, but my lower target price reflects my need for a higher margin of safety when purchasing a technology company.

The only other company I am interested in this month is my largest holding, Alaris Royalty, as I would like to start shifting some of my holding from my RRSP to my taxable account. I would do this by purchasing shares in my taxable account, waiting a month to avoid tax consequences, and then selling an offsetting amount of shares in my RRSP. I plan to do this in order to free up funds in my RRSP to invest in US companies and REITs. I see this as a way to use the growing amount of cash in my taxable account productively, as it is approaching an all-time high. 

Which dividend growth companies are on your watch list for April???







6 comments:

  1. I really like BMO and CSCO at the prices you listed. I own CSCO, but BMO is not in my portfolio. Thanks for sharing.

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    1. After checking out your profile, looks like you have Qualcomm. What are your thoughts on that company?

      Thanks for the comment.

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  2. CSCO looks pretty decent and I need to reevaluate them. VZ looks like another decent option here although the share price has run up a lot over the last 1.5 months. But that just pushed it up near fair value and the cash flow should support solid growth. Although debt will be a drag on dividend growth over the next several years. All the best.

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    1. Thanks for sharing your thoughts JC. I'm holding onto some cash in my RRSP specifically for a dip by CSCO. Just need a couple down days in the market to bring it into my range.

      Great article you posted on forecasted dividend raises this month!

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