Thursday, November 3, 2016

November 2016 Dividend Growth Stock Considerations

Although October started quickly for me as I initiated new positions in the A&W Revenue Royalties Income Fund, Emera Inc and Life Storage Inc, the remainder of the month was calm.  Perhaps I was overwhelmed after three quick purchases, and became reluctant to start another round of bunched buying. As my cash positions continue to build in all three of my investment accounts, here are some companies that are especially interesting to me heading into November.

Canadian Companies: 

After establishing a half-position in Emera Inc. (TSE: EMA) last month, I am already considering adding to my holding. Currently, Emera seems like a steal at a trailing 12-month P/E multiple of 14.5X, yielding 4.5%, and having announced a 10% dividend increase late last summer. With Q3 earnings slated to be announced on November 8th, I will be listening with anticipation for signals that it's time to increase my position in my only pure utility play.

Beside the revenue royalty shares in the Keg (TSE: KEG.UN) and Boston Pizza (TSE: BPF.UN), which I have covered in multiple past monthly watch lists, I am keeping an eye on Enercare Inc (TSE: ECI). This investment grade rated (BBB/Stable) provider of rented hot water tanks and HVAC services yields an attractive 4.8% (recently increased by 10%) and derives about a quarter of its revenue from the United States. My main stumbling block on Enercare is I am having a tricky time valuing it appropriately. Using a P/E or FFO measure indicate the shares are quite costly, but that might be due to a recent material acquisition that I am having a hard time accounting for in my cashflow forecasts.

United States Companies: 

The recent sell-off in US REITs is fascinating to me. As a long-term investor, I question how a possible 0.25% hike in interest rates would cause a 10-25% drop in the value of a given REIT business model. Despite the Canadian dollar being at a year-long against the US dollar, if the US REIT markets continues its slump, I am very open to adding to any and all of my US REIT holdings. The most likely recipients of increased investments would be Life Storage Inc (NYSE: LSI) and  Iron Mountain (NYSE: IRM).  Although I love Realty Income (NYSE: O), it still seems pricey from a P/FFO perspective at its current price. As attractive as Omega Healthcare (NYSE: OHI) looks from a valuation perspective, I'm happy with the current size of my position and am not actively looking to add to it.

In terms of US companies which I do not currently own and would consider initiating small positions, Tanger (NYSE: SKT), Digital Realty Trust (NYSE: DLR) and AbbVie (NYSE: ABBV) are all entering very attractive valuation territory. Although it's unlikely I would initiate another position in a US stock before the end of the year, any sustained weakness in the above three names might provide the catalyst I need to seriously consider initiating a position.


Instead of asking which stocks interesting you heading into November 2016, I'm particularly curious if there are any Canadian dividend growth stocks you are looking at closely given their current prices? Thanks in advance for sharing your ideas.

2 comments:

  1. I think REITs are reacting not just to the 0.25% bump possibility but the idea that a trump administration will mean higher inflation and a higher chance of future interest rate raises. I hold a good amount of REITs in my portfolio but fully expect them to under perform in the near term if that turns out to be the case.

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  2. Fair point, but then how do you explain the amount of day-to-day variability in certain of the big US REIT names (i.e. O, DLR, WPC, etc.)? Are investors/traders/speculators accounting for the higher inflation/interest rates/bond yields one day, and then subsequently changing their collective minds the next day? Don't get me wrong, your thesis makes sense, it's the amount of volatility that seems disconnected from reality.

    I appreciate your thoughtful comment. Thanks for stopping by.

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