Friday, May 20, 2016

Which Financial Superhero Are You?

With a long weekend mere hours away and beautiful temperatures forecast, I feel super!  As my son was watching an episode of Paw Patrol this morning that featured a caped superhero K-9, I brainstormed some financial superheroes. I apologize in advance for the vast number of exclamation marks.

Buffett Boy!
You generate astronomical returns on your investments and watch your snowball grow as you near financial independence.  Lots of ‘dry powder’ is on hand in case a fat pitch crosses your path.

Master of the Budgets!
No expense goes untracked, no inflow gets forgotten, and each unanticipated expenditure is easily classified into a contingency account. You harness the power of spreadsheets to help you succeed.

Super Saver!
Scouring expenses to identify where to cut the fat is your specialty and you embody the frugal lifestyle without ever becoming ‘cheap’. You proudly challenge every recurring expense.

Vanguard Vagabond!
Your stress-free indexing strategy allows you to focus on the things that really matter in life while your wealth compounds along with the markets. Like the turtle, you know that slow and steady wins the race.

Sidekick Hustler!
Sure you hold down a typical job, but you dedicate your nights and weekends to your growing number of side hustles that keep your income growing. Hustle dollars exponentially increase your happiness.

Rental Mogul!

Donald Trump who? You discover hidden gems, fix them up, rent them out, get them cash flow positive, sell them, and upgrade to duplexes, triplexes….to infinity-plexes and beyond!

Debt Destroyer!

Student loans, credit cards, car notes and mortgages all get paid off in an accelerated and orderly fashion as you tackle the highest interest rates first. You yearn to cut your evil creditors to zero.

Tax Tempest!

Instead of believing the old adage about the certainty of death and taxes, you devour the tax code to identify more deductions and ways to shelter your income.  Tax season is year round!

Dividend Divine!

Through harnessing the power of dividend growth investing and focusing on buying quality companies with large moats, your income stream expands from a drip to a deluge!

Benign Beginner!

You determine that the best time to start investing is right now and you can’t wait to start growing your nest egg. You take the hugely important first step from thought to action!

Mulitmedia Maven!
You leverage the power of the Internet to create multiple revenue streams through your blog, podcast, videos, on-line course and E-books. You convert commenters to followers to fans to customers to friends.

Financial Freedom Achiever!
With your hustling years behind you, you are content to enjoy the fruits of your labor while sharing your freedom formula to motivate the masses. Despite being “retired” your mind is still a breeding ground of ideas, projects and potential. Your options are wide open!

Which financial superhero or superheroes above best describe you? Did I miss any financial superheroes? Feel free to add your own financial superhero or illustrate an avatar. Have a super weekend!

Wednesday, May 18, 2016

Ten Canadian Restaurants With Growing Dividends

Since my Five Canadian Utility Companies With Growing Dividends post proved both popular and personally useful, I decided to explore another sector I am interested in: Canadian restaurants.  As indicated by my Investment Holdings, I am currently only invested in one restaurant - McDonald's Corporation. Given my feeling McDonald's is overvalued (P/E ~ 24X), I wanted to look for Canadian restaurants with growing dividends. The below table contains the ten Canadian restaurants who managed to increase their dividend in the past year.

Company Name Div Yld% LTM Payout % P/LTM EPS DPS 1Yr Gr % DPS 3Yr Gr% DPS 5Yr Gr%
Diversified Royalty Corp. (TSX:DIV) 9.67 293.0 32.9 533.3 - -
Boston Pizza Royalties Income Fund (TSX:BPF.UN) 7.44 108.5 22.8 7.82 3.68 0.503
Pizza Pizza Royalty Corp. (TSX:PZA) 6.12 104.5 16.6 3.01 4.34 (1.15)
Keg Royalties Income Fund (TSX:KEG.UN) 6.01 93.8 11.4 5.76 2.03 (3.61)
A&W Revenue Royalties Income Fund (TSX:AW.UN) 5.29 95.7 19.5 4.27 1.41 2.33
Imvescor Restaurant Group Inc. (TSX:IRG) 3.61 26.8 11.9 300.0 - (23.2)
Canlan Ice Sports Corp. (TSX:ICE) 2.32 NM NM 33.3 0 21.7
Cara Operations Limited (TSX:CAO) 1.37 11.3 13.9 10.9 - -
MTY Food Group Inc. (TSX:MTY) 1.33 28.6 24.0 16.9 20.9 35.8
Restaurant Brands International Limited Partnership (TSX:QSP.UN) 1.15 78.4 51.4 444.4 - -

Here are some observations regarding the ten companies:

- Diversified Royalty Corp and Canlan Ice Sports are not solely restaurants. Diversified Royalty Corp also receives royalties from an oil change and realty franchises, while Canlan operates sporting facilities, some of which have restaurants onsite.
- The high payout ratios for the top five companies can be partly explained by their business structure of receiving and distributing royalty and licensing payments vs the actual operation of restaurants.
- The only companies on the above list with revenue generated outside of Canada are Restaurant Brands International (Tim Hortons and Burger Kings operating in over 100 countries) and MTY Food Group (10% of revenue coming from the US and the Middle East).
- Despite their impressive record of dividend growth, a recent Globe and Mail article on MTY explained why the majority of analysts that cover the company have negative views on its prospects.
- The newest member of the list is Cara Operations which went public in April 2015. In March 2016, Cara announced they had acquired the 117 St. Hubert restaurants, mainly in Quebec for $537M. As a Quebecer, I can confirm that St. Hubert's is ridiculously popular across the province and the acquisition has the potential to be a huge win for Cara.

Of the above ten restaurants, Pizza Pizza, A&W, and the Keg interest me the most. Their relatively generous dividend yields along with their recent history of dividend growth are impressive. None of the three seem expensive with P/E ratios under 20X. A&W's marketing has established a clear niche for them as a higher quality fast food operator who serve meat raised without hormones or steroids. Although I only tend to eat at the Keg once or twice a year, I am impressed with their constantly changing menu and high quality service. Although I am not a fan of Pizza Pizza's product, their brand recognition and low price points make them an obvious choice for budget friendly pizza. My further research will include looking at each company's geographical distribution of locations, historic same-store sales figures, the taxation of shareholder distributions, and royalty/licencing systems in place, among other things.

Do you own shares in any of the ten Canadian restaurants?

Thursday, May 12, 2016

My ETF Experiment - Bought VCN and VXC

Last fall, I wrote about my plan to use a passive ETF index strategy in my son's Registered Education Savings Program ("RESP"). Although I was slow to implement the passive ETF index strategy, I decided on and bought two Vanguard ETFs recently so that my son's RESP funds for the first three years of life are now fully invested. The two ETFs I purchased were the Vanguard FTSE Canada All Cap Index ETF ("VCN") and the Vanguard FTSE All-World Ex Canada Index ETF ("VXC"). A brief overview of the ETF funds is included below.

Vanguard FTSE Canada All Cap Index ETF (TSE: VCN) 
From Vanguard Canada's website, VCN "seeks to track, to the extent reasonably possible and before fees and expenses, the performance of a broad Canadian equity index that measures the investment return of large, mid- and small-capitalization, publicly traded securities in the Canadian market." The ETF currently holds 233 companies' stocks, has a P/E of 26X, a 1.7X P/B ratio, and a 12% ROE. The ETF's top three holdings are Royal Bank, TD Bank and Scotia Bank. The fund's top 10 holdings account for 38.5% of its net assets. The fund's management expense ratio is 0.06%.

Vanguard FTSE All-World Ex Canada Index ETF (TSE: VXC) 
Also from Vanguard Canada's website, VXC "seeks to track, to the extent reasonably possible and before fees and expenses, the performance of a broad global equity index that focuses on developed and emerging markets, excluding Canada." The ETF currently holds 8048 companies' stocks, has a P/E of 19.5X, a 2.0X P/B ratio, and a 16.8% ROE. The ETF's top three holdings are Apple, Alaphabet, and Microsoft. The fund's top 10 holdings account for 9.8% of its net assets. The fund's management expense ratio is 0.27%.

I bought approximately the same dollar amount worth of each ETF.  The total transaction costs were $20. I plan to rebalance the portfolio when I make the 2017 RESP contribution. This passive strategy is meant to save me time. I feel an all equity portfolio diversified across the world meets the risk profile and investment objectives of my son who has a 16 year time horizon before he needs to start withdrawing the funds for college or university.

My Investment Holdings page is updated to reflect my son's RESP.

Do you own any index ETFs or index funds?

Thursday, May 5, 2016

Dividend Growth Stock Considerations for May 2016

As helpful as establishing a monthly watch list is for my investment process, I am finding these posts increasingly challenging to draft. The need to justify exactly why I am interested in a particular stock, establish a target price, and then sticking to my convictions has introduced much more discipline into my investing. These monthly watch lists hold me accountable to readers and to myself. Keeping that in mind, I wanted to provide additional disclosure regarding a transaction I undertook last month with one of the companies on my April watch list.

On April 5th, I established a full position in Granite REIT in my RRSP at my strike price of $37. As is usually the case when I invest in a company for the first time, after I purchased the shares, the share price continued to decline to just over $36 per share. However, before the company traded ex-dividend on April the 27th, the share price climbed up to over $38. After feeling guilty for quickly establishing a full position in the company before the share price dropped another 3% throughout the month, and realizing I could sell my shares and realize tax-free profits equal to multiple months of distributions, I sold my position in Granite on April 26th. Instead of including a full write-up on Granite again this month, like the Bank of Montreal, I am simply including the target price at which I would consider re-establishing my position below.

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

Granite Real Estate Investment Trust (TSE = GRT.UN); Target Price = $37

Cisco Systems, Inc (NASDAQ = CSCO); Target Price = $26 (up from $24 last month)

Cisco is one of my 'almost full positions' that I would like to complete with my 2016 RRSP contribution. With the Canadian dollar recently climbing to $0.79 against the US dollar, I am more willing to pay a slightly higher price for Cisco that raised its dividend by 24% in February. My target price represents a trailing P/E multiple 13X and a dividend yield of 4%. Cisco's AA-/Stable and A1/Stable bond ratings show their financial strength and reflect their industry leading position. I will not hesitate to complete my position in Cisco if my target price is met before their Q3 earnings announcement on May 18th.

Tanger Factory Outlet Centers (NYSE: SKT); Target Price = $34

Given my two full positions in Omega Healthcare REIT and Realty Income REIT, I would like to add another US REIT that has asset holdings unavailable on the Toronto Stock. Tanger fits the bill as an operator of outlet malls with 42 locations across the United States and Canada. Last month, the company announced a 14% dividend raise that is well covered given the company’s FFO payout ratio of 59% in Q116.  In terms of valuation, at my strike price of $34, Tanger’s P/FFO multiple would be about 14X, and price to book value would be less than 6X. Both of the preceding values are lower than the company’s average valuation multiples over the past five years.

I would be remiss if I did not mention that I am still considering adding shares of Alaris Royalty and Enbridge Income Fund in my unregistered account.  As the cash in this account continues to grow, I have been thinking of ways to deploy it intelligently. The only other name I feel worth mentioning at this point is SNC Lavalin whose recent 10% decline in stock price is making it more interesting as a way of adding sector diversification and a tax friendly/lower yielding dividend growth stock in my unregistered account.

What companies are you considering investing in this month?