Tuesday, August 2, 2016

August 2016 Dividend Growth Stock Considerations

After experimenting with the format of my June watch list, and skipping a July list altogether due to my vacation and lack of oustanding opportunities, below are some stocks I am considering for purchase in August.

Canadian Companies: Four Restaurants & Two REITs

As I indicated in my post Ten Canadian Restaurants With Growing Dividends, there are a number of Canadian restaurants that I am interested in. In particular, the combination of distribution yield, distribution growth, modest price-to-earnings multiples, and same-store-sales growth at the Keg (TSE: KEG.UN), A&W (TSE: AW.UN), Pizza Pizza (TSE: PZA), and Boston Pizza (TSE: BPF.UN) are all drawing me toward investment. The main thing holding me back from purchasing units in any of the four restaurants is the strong price appreciation since I posted that entry in May. Despite the share price appreciation, I will likely add shares in the Keg or A&W in my TFSA. As unscientific as it might sound, I enjoy the food and dining experience at Keg & A&W far more than that at Pizza Pizza and Boston Pizza, and will feel more comfortable being a shareholder in businesses that I patronize.

After adding shares in Granite REIT earlier this year, there are two other REITs that interest me which were covered in my post Canadian REITs With Growing Distributions. Since I plan to write more on the Brookfield group of companies later this month, I will simply note that Brookfield Canada Office Properties (TSE: BOX.UN) offers a good combination of current yield (~4.5%) and growth (~5.7% over the past year) at a reasonable Price/FFO multiple. Despite having a lower current yield (~3.9%) and distribution growth rate (~3.3%), I am still attracted to Canadian Apartment Properties REIT (TSE: CAR.UN) due to exposure to the rental market in large Canadian cities. For those of my readers south of the Canada/US border, home prices in many large Canadian cities (Toronto and Vancouver being the most obvious examples) have entered what I consider to be the bubble zone. Even in Ottawa, among my younger professional colleagues, many are currently renting while they wait for house prices to correct downwards. As the housing bubble continues to inflate, CAR.UN stands to benefit from rent increases and growth opportunities to provide affordable rental housing.

United States Companies: A Hold-Over from June and An Old Friend

One of my plans within my RRSP is to create a basket of US REITs covering industries that I cannot invest in through the Canadian markets. Iron Mountain (NYSE: IRM) offers storage and information management services to companies worldwide. Although I am usually reluctant to buying a stock trading near its 52-week high ($41.50), there is a lot to like about this unique company. The 4.7% dividend yield, guidance indicating double digit annual dividend growth in 2017 & 2018 with 4% growth thereafter, Price to estimated 2016 FFO =~ 17X, Price to estimated 2016 AFFO =~ 15X, and a recently upgraded BB-/Stable credit rating from S&P all help provide me comfort initializing a position. Now if only the Canadian Dollar could pick up a little steam against its US Dollar counterpart.

I was pleasantly surprised last month when Omega Heathcare Investors (NYSE: OHI) announced a two cent distribution increase instead of their normal one cent distribution raise they provided each quarter over the last three years. Although I have a full position in Omega within my RRSP, I continue to find the yield (~7%) and relatively low P/FFO (~13X) tempting. Although I would likely not add much to my current position, I could definitely justify nibbling a bit more on Omega.

Which stocks interest you heading into August 2016?

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